Radar gives you some warning and time to work with, so having Range 1 set spreads out your CAP aircraft over a wider circle, but it also enables them to have more time to shoot at the enemy. i.e. one fighter can make multiple passes at the enemy formation before they arrive.
I can be wrong (wouldn't be the first time... this hour), but I do not believe this is true. Strikes attack a base / TF... in other words a hex. The radar range is usually more than the hex radius (or even hex diameter). The combat takes place entirely within the hex being attacked. This has a few implications:
The radar range is just fed into algorithms to come up with a time to target (along with altitude, cruise speed, and probably a host of other factors). It is the time to target that matters. "Raid detected at 72 nm" does not mean that fighters set to 2 hex radius perform better. Your airborne fighters will attack, others will scramble based on settings, conditions, luck, climb rate, etc and trickle into the fight.
You can get a longer range detection than the raid actually travels. Travel 1 hex (40-80nm tops), you can still get very long range detections
You can not set up a contentinal type air defense. Trying to protect Tokyo from B29s out of Saipan? Don't bother within anything on Iwo. They won't help in either detection or intercept.
As to my settings - it appears I'm different than the rest of the advice here.
I use 100% CAP on a regular basis. A few things to be aware of if you decided to do this:
set range = 0. Pilot fatigue will not be an issue unless there is heavy fighting.
watch pilot moral. It takes a looooong time, but it will go down.' Once it goes down, it stays down until you rest the squadron.
watch airframe fatigue for CV A/C. They get beat up doing all those landings day in and day out. You can "fix" A/C fatigue by standing down the squadron or by unloading the squadron from a CV from the port menu (takes them off on cranes and disables them... takes a few days to repair usually fixing the fatigue in the process) - note this is different from flying off a squadron which is what happens if the CV is in a TF. Think of A/C "fatigue" as wear and tear (faulty radio, leaky hydraulics, old engine oil, etc), and not metal fatigue.
you will NOT have those fighters performing other critical missions such as escort, or providing CAP for nearby TFs. Make sure you have squadrons set to perform these tasks if you want / need them done.