A settlement is any place in Just Cause 2 that is inhabited. Undiscovered settlements will appear as yellow dots on your map, and discovered ones will show depending on the type they are(military base, town, ect). You may notice when you enter into one it will show the percent you've completed in it, this is determined by a few things.

[1] The amount of government property destroyed in the settlement boundaries. This is things such as towers, fuel tanks, generators, satellite dishes, and cranes, just to name a few. All these things should be easily recognized by their colors; painted with red and bearing a white star which is the government symbol. Government property may also include special structures which require more than shooting to destroy. This includes things such as communication antenna which need to be activated at control panels before they are venerable, and gas pipe stations which need to be set to destroy themselves. You should be able to recognize special structures just by looking at them, they are big and important looking.

[2] The supply crates that have been recovered in the settlement area. These are money crates, armor crates, gun parts, and vehicle parts. They are easy to find because they can be tracked using the PDA. A white signal indicator will appear in the most top-left corner of your mini-map while in-game when you are somewhat close to a supply crate. It won't show you direction, but it will show you the strength of the signal which converts to how close you are to it. Just explore around until you narrow it down and find the spot.

Things which don't matter but some people might think do matter when it comes to settlement completion are faction items(skulls, drugs drops, ect), fighting the soldiers, or missions.

The benefits of completing a settlement 100%, besides a reward of cash and chaos, is that government soldiers will no longer attack you simply for entering restricted areas. Very helpful for military bases, as you can then walk in and take military vehicles like a walk in the park.