The drop-down box contains all the National Language Support DLLs that XFolder could find in its own directory. All these DLLs are named "XFLDRxxx.DLL", with "xxx" being a three-digit country code. For example, English is "001". See the OS/2 Online Reference for a list of country codes.
Changing this setting will take effect immediately in respect to context menus and message boxes. Note however that the OS/2 System notebook, in which the XFolder Global Settings reside, will only notice the change after you close and re-open it.
In any case, a reboot is NOT required.