More speculation - I am not an RF engineer, these are just my random thoughts:
I don't think these values are changing the "radio power" as we think they are. Here's why:
1. I tried setting the values to 1 and got very high signal strengths (-70dBm and higher). I then tried setting the values to 65535 and also got very high signal strengths (this time as high as -20dBm). If both ends of the scale produce high signal strengths, this could not be a linear setting of power.
2. Battery consumption does not seem to change with these values. If more power was being sent to the radio, power consumption would go up.
3. The output power of the radio is definitely unaffected by these values as that is actually decided by the tower.
After reading about CDMA in general, some things I've learned:
1. "VGA" means Variable Gain Amplifier; it's job is to take RF signals from the antenna and amplify the carrier band while discarding signals outside that band.
2. RX power measures the total amount of RF energy coming out of the VGA, inside or outside the carrier band.
3. Ec/Io is the important number; it is the ratio of carrier signal to total amount of RF energy.
I'm not sure what "offset" means in this context, but I can make an educated guess; when I change these values from their defaults, RX power goes up or down. In general, small changes seem to decrease RX power, while larges chanes seem to increase it. In both cases, Ec/Io becomes worse or at best remains the same. Therefore, I believe these values are somehow controlling the bandwidth of amplficiation by the VGA. In other words, they decide what part of the incoming signal will be kept and what will be discarded. Insane values such as 1 and 65535 probably make the window very large, hence the large signal strength.
Due to electrical differences between phones, these values are probably calibrated at the factory to focus on the carrier band.
Source for most of the above:
http://www.cdmaonline.com/interactive04/flash.html
Oh, and according to the folks at XDA, a ##786# will reset these values to their defaults.