The `audio_folders` tells Rhythmbox where to put music files. Without that line all songs will be put under the root and thus the player won't recognize them.
The `output_formats` describes all formats the player can **create**, i.e. by the internal recording feature.
The `input_formats` describes all formats the player recognizes so that Rhythmbox can decide whether to transcode a file or not.
`folder_depth` influences the directory structure Rhythmbox creates. A `folder_depth` of **2** creates a `Artist/Album/Song.mp3` structure. A **1** creates a `Artist - Album/Song.mp3` (which is what I prefer) and, I guess, a **0** doesn't create any folder but just puts the files into the `MUSIC/` directory.
The `playlist_path` and `playlist_format` describe the location for playlists and what format the player supports. (I'm not sure whether the FUZE supports `audio/x-mpegurl` format.)
The file `/usr/share/hal/fdi/information/10freedesktop/10-usb-music-players.fdi` lists the options usually set for FUZE players. Just search for the string "Fuze". But I guess the PnP-ID of the newer models isn't in that XML file.