first response ...you are brave starting with PoN. Can I seriously suggest play the battle scenarios, both the 1859 (Italy) and Russo-Japanese war that come with the stock game will teach you a lot about troop movement and combat in the AGE system. If you feel like splashing out, the Franco-Prussian war DLC is another good one (& you can even see me make a disaster with the French ... link in my signature).
Second, very shameless plug. Have a look at 'Manufacturing Italy'. It starts as 'how do I play PoN', but there are a lot of posts (described as such in the table of contents) that describe various game mechanics - I'm assuming you don't want to read the whole thing, not least Italy burns down Vienna 3 times before its all over

. Also look at the lets plays, these discuss how the various economic screens and economic model fits together.
Activation - use the middle one. Harsh is ... well harsh, if you are inactive you can't move which is too much in PoN (works well in some other games, I had a great tussle with the AI in Rise of Prussia using that setting as a balance). Leave redeployment to the AI, as a player you should be able to preplan much more effectively and if you are caught out ... well that is part of the fun.
Rest sounds sensible, commitment means there is a greater chance of arriving in a province and not starting a battle. Its pretty neutral at any level.
Keep the AI on standard attrition, the loss of manpower and goods will really hamper it. For the player, 'historical' enhances the importance of depots and reserves, so its good for making the flow of the game more realistic.
Remember, you can change all these settings at any stage in a game, so if you find it isn't working as you want just amend them.
... and (final thing), if you are going with Austria, check out Kensai's Gross Deutchland mod (my spelling is probably wrong), it tries to model the outcome of Austria winning the struggle for Germany in the 1860s rather than Prussia