The Font size setting controls the size of text throughout your device.
People with poor eyesight may want to increase the size of the text, while those with good eyesight and who want to see more text on screen can reduce it.
What is affected
This will effect the text size in your home screen, in menus such as the settings menu and menus within apps, and some text in apps. Text will be sized relative to its normal size while retaining different sizes in different contexts, so for example in menus the large text of menu items will always stay larger than the smaller text containing descriptions or help, but both of these will be scaled up or down according to the Font size setting.
It should be noted that some apps specify their own font size and ignore this setting.
In some cases the difference from the normal text size is quite subtle and may be hard to notice, such as the labels below icons on the home screen which seem not to change much.