The short and obvious answer is of course that "Track" is a quick way to just promote the email into CRM without further classification (it can of course be classified later); whereas "Set Regarding" not only promotes the email to CRM but also classifies it to the appropriate account, contact, opportunity, case etc. at the same time.
As it is unlikely (in the real world that is) that an individual would later go and reclassify something that was promoted earlier, it is generally best practice to use the "Set Regarding" option to classify immediately so as to satisfy the "if-not-now, when?" dictum. And given that the CRM 2011 Outlook Client has now made it that much easier to use the "Set Regarding" option by maintaining a "recent" list of associated entities (see screenshot above) chances are that the time required to click Set Regarding vs. the single-click Track option is going to be anyway minimal, thereby reinforcing the aforementioned general best practice.
However what if I just want to promote and classify an email to the contact that sent me the email? It seems kind of silly to have classify the email to the contact that sent me the email by using "Set Regarding" since the email already is implicitly classified by the "From" email address that it was sent from (or "To", "Cc", "Bcc"). Shouldn't it auto-classify and not require me to reclassify again by using the "Set Regarding"? That would just seem like common sense, wouldn't it?
And fortunately the answer is that this is not only common sense but also how CRM will actually handle it. To understand, let's first analyze how CRM handles the email distribution list. It is important to note that the handling of the email distribution list is the same regardless of whether you use the "Track" or "Set Regarding" option so the next paragraph applies to both techniques.
In a nutshell, CRM will try and auto-resolve all the contacts on the email distribution list to a CRM contact, or user record. This is best illustrated by viewing it in the Microsoft Dynamics CRM panel below the email and also in the CRM email record itself after having click "View in CRM"
If CRM is able to successfully resolve the email to a contact record, the email will then appear in all the resolved contacts "Closed Activities".
Not only that, the email will also appear in parent "related regarding" roll-up views.
To re-iterate, all the above is performed as part of email resolution process regardless of whether you elected to use "Track" or "Set Regarding". Which therefore means that had you just used the "Track" option for the email, you still are able to have it be associated with the appropriate contact and parent account.
Therefore for emails (appointments and tasks) if your only requirement is to track the email to the corresponding contact record in CRM then selecting "Track" should be sufficient (assuming the contact exists - there are also options for auto-creating the contact if not, but that again is a topic for another discussion). In this scenario, using the "Set Regarding" is arguably redundant. However if you wanted to related the email to some other "less obvious" entity (case, opportunity, etc.), then you obviously would need to make use of the "Set Regarding" feature as per the aforementioned best practice.