That's pretty much how I understand what the REEL and GAME chips do, although there is technically probably more to it.
Sometimes your machine will give an error and all you have to do to get rid of the error is open the door and then close it again, maybe turn the Reset key on the side of the machine. But now and then a persistent error can happen that you can't get rid of using the normal methods. That's when you use the CLEAR chip. You don't want to CLEAR the machine unless it really needs it because you will have to set up a lot of settings that will be lost and that can be a major pain for someone not familiar with the process.
The only reason for the SET chip is to enable the bill validator on the machine if it has one. That is the paper money acceptor, it is disabled by default because back when the S+ machines first came out they just used coins primarily and bill acceptors hadn't become common usage. If you don't have a bill acceptor then I don't think you will be using the SET chip. And if you do have a bill validator and it is already enabled you won't need the SET chip unless you CLEAR the machine. There are different versions of the SET chip, the Set 15 is a popular one.
It is good that you have the SET and CLEAR chips in case you ever need them.
I think you have the general idea on how the SP731 works. By pressing the white TEST button inside the machine you bring up the settings menu, it consists of several numbered steps and substeps. As you step thru the menu when you get to a numbered step that you want to change you press another button or turn the reset switch to make changes, I'm not that familiar with the S+ to give exact details. Then when you are done making all the changes desired you save the changes. As a guess, I think the SP1271 has the same menu choices that your SP731 does, plus several additional ones since it is a later version SP chip. So the information you read about any of the SP1271 menu choices that are numbered the same as the SP731 menu choices would apply to the SP731. That means the menu choices for something universal like hopper settings are probably the same. But this is just a guess on my part, someone here will say how it works so stay tuned. Another thing to think about is that you can probably remove your old SP731 chip and upgrade to the SP1271 chip, that would likely give you more choices and settings. But doing that may change how the machine communicates with the bill validator (comm protocol) so you'd want to make sure about everything before changing out your SP731 chip.
Is your machine working properly, more or less? Does it have a bill validator and will it take in paper money? Is it setup for quarter coins or something else?
Here is a spreadsheet with different tabs at the bottom for different SP chips and the settings they have, the SP731 is one of them:
http://newlifegames.com/nlg/index.php?topic=586.0