What does this menu do?

If "minimizing the text spacing," 「行間を狭くする」「行間を狭める」 sounds better, I guess.

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It’s an option to only display a maximum of 260 characters (I think) per post. So really long posts don’t take up too much of your timeline. And you have to click a button “Show More” to show the rest of the post.

I see! 😃✨

So it may be like

「長い投稿を折りたたむ」

(You might as well ask around since I am not a translator.)