The last contacted settings allow you to be able to control what action will update the 'Last Contacted Date' on contact records.
Note Added - Enabling this option will cause the 'update last contacted date' checkbox to be ticked by default when adding any new note to a contact record. A user can still choose to not update the last contact date by deselecting the checkbox when adding the note.
Reminder Completed - Enabling this option will automatically update the 'last contacted date' on any contact record when it's related to a reminder that is marked as completed.
Mail Merge Completed - Enabling this option will update the 'last contacted date' when a mail merge event, involving the contact, is completed.