A settlement is a place where people live. A settlement could be anything from an isolated farmhouse to a mega city (settlement with over 10 million people).
Settlements can either be temporary or permanent. Temporary settlements include things such as refugee camps. Some temporary settlements have become permanent over time such as the Rochina, the largest favela in Rio de Janeiro, Brazil.
The reason why a settlement developed in the first place is said to be its function. For example the function of Liverpool was as a port.