You should change such settings using the in-game options menus, or the Configure button in the Launcher menu, and not here. Details of the major tweaks in each file are covered below, however note that settings which can be easily and completely adjusted using the in-game settings are not covered below.
ini files swkotor2.ini and swplayer.ini can be found in your \Program Files\LucasArts\SWKotOR2\ directory and contain the bulk of the performance-related options for KOTOR 2.
