I'm confused.

What's the rush?! It took me a long time to put weight on, and I don't expect to lose it overnight. There are a lot of very important informational posts on this subject all around the site. Believe it or not (and I do) you need to eat to lose weight. You have to give your body the fuel it needs. If you don't, your body will hang on to every bit that it can, thinking you are starving.
I have my weight loss set to 1 pound per week, and most weeks I lose more than that. And I'm big, so I get a lot of daily calories. I eat them. If I exercise, I eat those. From 12/14 until last Saturday (my last weigh in) I had lost 12 pounds. That was a steady 2# per week loss. I did it by eating MORE, not less, and working out 4-5 times per week.
I also lost 4" from my hips and 2" from my waist from 1/8 until today. Which is the REAL story, not what the scale says.
I encourage you to do a lot of reading here. There is a lot to learn. It may sound counter intuitive that you have to eat more to lose weight, but it is sound science.
It's working for me! Good luck.

It's harder when you have less to lose. When I was heavy, I could eat 1500-1800 cals a day and eat whatever I wanted on the weekend, and still lose weight.

I'm also at the point where I'm at 1200 calories a day, and that has me losing 1.4-ish lbs. per week (assuming I eat my exercise calories). The baseline that MFP has you at is 1200. It won't ever set you below that because it's not considered healthy to eat less than that. That doesn't mean that you have to eat back any of your exercise calories. That's where your extra calorie deficit can come from. In theory, if you can have an additional deficit at the end of the week of 2000 calories or so (from exercise), you would lose two lbs. that week. I know for me, I have 1-2 workouts a week where I burn 800 calories (running, spinning, circuit training). Sometimes I'll just choose to not eat back those calories. They really add up over the week.

As for the settings I guess my advice would be, just look at the numbers. At first I tended to get very focused on how many cals MFP says I have left, or OMG I overdid my sugar, or I worked out today but I feel guilty eating 400 extra calories. I got over that by conditioning myself not to just look at those bottom line numbers.

For example, if my sugar is 3 grams over, but my fiber is 7 grams over, and my protein is 5 grams over then I know I still came out ahead, because fiber and protein are positives and sugar is a negative. So over all I was 12 grams / points whatever......OVER which is good, but I was only 3 grams over on sugar which is bad. In the big picture, I was still nutritionally where I want to be, because I'm focusing on calories and low gi.

Exercise is similiar. I look at my total calories now, that I have eaten, not what MFP says I have left. To me, if I eat 1400-1450 cals and I know I pushed myself in workout and had a good sweat, then I'm ok with it. If I skipped the gym but lugged laundry up the stairs all night and took the kids out to play etc and that night I'm hungry at bedtime, I'll go up to 1300 or 1350. I just don't look at the number saying I'm over, I know I'm not over, because I'm looking at what I consumed and I know what I did that day. On the other hand, if I didn't go to the gym and I worked at my desk all day, then I pay strict attention to my 1200 calories.

Maybe I'm rambling but you get the point, I wouldn't focus on those bottom numbers so much, I'd work with the diary and look at what you consumed and find the level that gets you moving again. You may be surprised to find it's higher than what you expected, or that you just need to tweak the kinds of food you eat, but just because mfp offers to 'think' for us, doesn't mean we can't still be in control. But I agree with others, I wouldn't go below 1200 in any case.