Effect rating refers to the flat damage rating, uninfluenced by level, str/int, or variance. Of course, if it has an attribute it will deal less or more, depending upon when the attribute weakness/resist of the monsters are. Variance is like luck, it determines how widely things vary. If you set it to ten, the impact str/int, level, and such has on damage increases. Str and int of course are increased by having higher stats, though they are also limited by opposing enemy stats, such as def for atk (and I think int is its own counter). Btw, if you want a more balanced game, cap agi at 255 for all enemies and party. This decomplicates battle, making it so you don't get 2x hit by enemies in a turn. Also, you can set status conditions to block spells which have more than a certain strength or int rating. Be sure to put strength for physical skills, so they don't get muted.
Here's one last thing, RPG2k3 disables skill use for Weapon attributes, but doesn't do the same for Magic attributes on weapons. Try it, if you put Slashing weapon attribute on, then later try to use a skill to do Piercing damage (especially if you aren't carrying a piercing weapon) you'll usually be unable to cast. So change all attributes to Magic.
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