"This setting is simply the maximum amount of heap space (read: memory) a single instance of the Dalvik VM (read: application) can obtain.
Don't read anything into the "benchmarks" performed. This setting should have little effect on overall system performance. The only scenario where it would be beneficial to increase the maximum heap size would be if you have an application that is very close to using up all of its available heap space, which would force it to run garbage collection frequently, which would use up CPU cycles. It is possible that lowering the maximum heap size could be beneficial in that it might prevent an application from obtaining more memory than it needs (by forcing it to garbage collect sooner), but that all depends on how the Dalvik VM is implemented and is really beyond my knowledge."
Source : xda
Another helpful thread : "http://stackoverflow.com/questions/15203400/android-vm-heap-size"
Higher maximum heapsize increases RAM useage but also can boost overall performance.
Lower max heapsize decreases RAM useage but can decrease system performance as well.
Just depends on how big your apps are and how much RAM they require.
It also depends on hardware too.
Quad core phones with 2gb+ RAM changing heapsize won't change performance that much.
On lower end devices it can make a difference.
I always did it on my old Samsung Galaxy S. Set it to 48mb.
Current devices are using 128mb already