Retraction distance is the distance that the material is retracted from the nozzle tip when a retraction is made.
This setting has five effects:
Retraction produces an underpressure inside the nozzle chamber, which pulls the material back from the nozzle opening. Retracting the material farther increases this underpressure, so that it works for denser materials.
When making long travel moves, the retracted material still has some time to melt in the nozzle chamber. Retracting the material farther offers a longer time for this molten material to drip out, preventing stringing.
Retractions wear down the material where the feeder grips them. Longer retractions wear down more of the material. This may cause the feeder to lose grip, thereby making the printer stop extruding altogether.
Longer retractions take more time than shorter ones.
Retractions that are made on the surface of the model will cause a bigger blob while the material is being retracted, because the nozzle pauses for a longer time while the material is being retracted.
If the feeder is very far removed from the nozzle, then the retraction distance must be very large as well.