Screen Optimization Recommendations

Any of these options are good at improving framerate. DLSS is the go to option for RTX cards if you can use it. All of these options will have a varying degree on impact on visual clarity for more FPS.

Lighting

All of the "Epic Settings" are hard to distinguish from "High" so those are preferred. "Medium" and "Low" are also hard to differentiate.
Ambient-Occlusion can be set to "Low" but some minor ambiance will be removed from small objects.
Ray-Tracing is a huge performance hit so I would discourage it unless you can spare frames.

Environment

Model Quality;
Changes the LOD view distance (details from far away). "High" is almost identical to "Epic."
Texture Quality;
I would leave this at "Epic" since it seems to have a minor impact on performance.
Volumetric Fog;
Set this to "Low." This really impacts your framerate so you can actually disable it in the game files in the next section.
Particle Quality;
It's hard to tell but I'm pretty sure this changes the amount of particles, the density of particles, and the resolution of particles. Also, it changes some aspects of the environment like certain plants. There are LOTS of particles in this game and "High" is almost identical to "Epic." However, "Medium" seems to be the best performance without ruining certain environmental lighting effects.

Post-Processing

Anti-Aliasing;
Personally, I can't see the difference between each setting. Choose whichever setting seems best to you.
Depth of Field;
This setting comes down to preference and shouldn't impact performance too much.
Bloom;
Adds extra lighting effects if your performance can afford it.

Finding the Engine.ini file

You should find the Engine.ini at this file tree:

C:\Users\CHANGETHIS\AppData\Local\Returnal\Steam\Saved\Config\WindowsNoEditor

Once you find it, right-click and "edit" the file. If you cannot, I recommend Notepad++ for file editing.

Copy/paste this at the bottom of the txt file and see what changes when you open up the game. You can also tweak some of these by adding 1 instead of 0.

[SystemSettings]
• r.Tonemapper.Quality=0 ; Disables Vignette.
  
• r.fog=0 ; Disables ambient fog.
  
• r.VolumetricFog=0 ; Disables Volumetric Fog.
  
• r.SceneColorFringeQuality=0 ;Disables Chromatic Aberration
  
• r.PostProcessAAQuality=0 ;Disables Temporal AntiAliasing

I would recommend keeping ambient fog enabled ( r.fog=1). It maintains the ambiance and atmosphere without taking up too much performance.
I would also recommend keeping Temporal AntiAliasing enabled ( r.PostProcessAAQuality=1). Without it, everything is EXTRA sharp/crisp. This is a preference thing.