To put it simply the sound-set is a set of sounds which are heard in game. We know 6 different sounds in GeneRally. The sound sets can be found in the "Sounds" sub folder of the main GeneRally folder.
To change the sound-set in game you have to follow this steps:
The process is rather time consuming but rewarding in the end. So far no one created a good tutorial about this matter (even though I plan to do it sometime in the future), but I can direct you to some forum threads where you will find some useful general info about GeneRally sounds.