What would be the best settings for the LCD Screen resolution (in the control panel->Display->setting), for a 21.5" LCD?

Really depends on the make and model and also your graphics card.
LCD TFT screens have an optimal (Native) resolution that they prefer and display best at.
Assuming your graphics card can output to the require Native res then go for it.

Your asking a subjective question. Go to Screen Resolution and try different ones to see what you like.

Thanks! I will try that tonight.
Wheel