The program you want to put that code in is: minetest.config (It's created the first time you start minetest).
You open it by doubleclicking. Normally your system has a default word editor to open minetest.config. If it doesn't work, choose 'open with' and then select yourself a word editor (could also be Word or Abi word).
I think the lines you want to copy are meant to be put in the minetest.config of a server, thus overriding you minetest.config on your computer. So they probably don't work, but also won't hurt.
When playing on Redcrab you should copy and paste this line in your minetest.config:
enable_texture_atlas = false
Ingame you can en/disable r for maximal viewing distance and use - or + (shift and +) to decrease or increase your normal viewing distance. Max or high range lower your FPS
The gray you see is a lag. Sometimes it's just in the beginning (right after connecting) that there's much. Disconnecting and reconnecting might help a bit. Enough servers have a spawn place where there are a lot of buildings, so it might take some time to build up the view and you'll have low FPS
Here's a link for the possible settings in your minetest.config, structured by PilzAdam:
http://minetest.net/forum/viewtopic.php?id=3197