That difficulty is how big chunks of work are required by the pool. Higher difficulty means it takes longer for your miner to solve the job (find a share) and vice versa.
Both too low and too high difficulty is disadvantageous.
The difficulty of your shares are calculated accordingl to well, their difficulty which is what the pool reported hashrate is calculated from.
You'll probably want a difficulty that allows you to find a share between about every 10-30 seconds.
Most pools will override your defined difficulty setting as time goes on if it's set too high or too low so it mostly acts as a starting difficulty.
Not defining it will just mean the pool will give you the starting difficulty (which you can see when you start mining).
So in the end it almost sounds like no matter if you set a defined difficultly or let the pool decide it...it will EVENTUALLY find the "perfect" mining difficultly after x amount of time?
