Sorry to resurrect this thread, but I have to agree that these settings are confusing in the extreme. IMHO the setup is flawed... as I understand it the original of the uploaded file is not kept and this is the root of the confusion. The large image is not necessarily the original (but it can be, depending what max image size is set to).
Option should be available to keep original (independent of whatever max image size says)
Option should be available to allow or disallow viewing of originals
Option should be available to create or not create mediums.