If you place the output level too high, or too low. Clipping will occur when the input
signal is large enough. See picture below. If you place the output level too high, you will more likely run into Vdd, and cause your signal to clip. If you place your output level too low, you will more likely hit ground, causing your signal to clip.
But if you place the output level near the middle. Your out put will have the most room to swing. (the bottom case in the drawing)
This is important if you want your amplifier to be linear. This is especially important
if the amplitude of the signal carries information that you need later.
For example, in AM modulation, the information is encoded in the amplitude. So clipping will cause you to lose your data !
Or the signals going to your speaker. If they are clipped before they reach your speakers, your music will not sound very good.
Clipping is a very ugly distortion.
Hope that helps.