It's essentially adjusting the leverage of the spring that counteracts the force of the spinning weights in the governor. If you make it too sensitive the engine speed will surge up and down because the governor overshoots its mark and then quickly reacts in the opposite direction, this cycle happens continuously, causing the engine speed to be erratic, surging up and down.
If you notice either the engine surging at constant or no load or an excessive fluctuation in RPM when a load it dropped off, your droop is set too sensitive.
a 3Hz droop from no load to full load is about as sensitive as you can go.