The compression stroke is where the piston is going into the damper body, and rebound the opposite.
Damping is reducing the energy of motion to acceptable levels over a certain suspension travel distance, so that the forces acting on the car don't disturb handling or put excessive vertical loads on the car and driver.
Compression damping controls the unsprung weight of the car (wheels/tires/brakes/half the suspension). The suspension will travel more than necessary if there's not enough of it, resulting in bad handling. Getting compression damping right is over and above more important than rebound for good handling.
There needs to be just enough rebound damping to not convert more energy than necessary. Translated - too much rebound means the spring cannot extend itself quickly enough; the tire will not be in firm contact with the road. A tell for too much rebound damping is a rough ride where it feels as if you are being launched out of your seat going over a bump. On the track, too much rebound will result in the car feeling unstable under braking or entering corners, and a tendency to oversteer out of the corner.
When adjusting a damper with more than one setting, make ONE adjustment at a time. I would start with both rebound and compression on full soft, and increase compression first. Go up a few clicks at a time, ride around the block, and keep doing that until you reach a point where the car feels good (each driver has a different preference, regarding suspension stiffness). Then adjust rebound and stop when you have a smooth ride. I imagine you won't go more than 1/4 - 1/2 the way towards stiff with rebound.
My preference is to keep the rear suspension settings a few clicks softer than the front; there is some benefit to rear body roll (especially if you do not have an LSD).
2011 BMW 335i E92 - Le Mans Blue, 6MT, M Sport. JRZ RS Pro, Quaife LSD, BMW Perf Exhaust