It just sets how many tool offsets show up on the offset page.
You could set several offsets for one tool or set up 200 tools, but you'd have to turn off the H&T offset match setting.
I always set it for however many tools fit in the machine. A machine could be set up to use the offsets if needed, like to match how a CAM tool library was set up. The tool #s would have to be within what the machine holds though.