I tried to upload a PNG image to our forum, but it was downsized to a smaller image with lower quality:

 2019-10-15_18h34_11.png You have insufficient rights to see the content.

A PNG picture of 229Kb became a 36Kb picture. This happens not only to PNG files but for JPEGs too. In Firefox and Chrome.

It seems, it stopped worked suddenly as only a few days ago our customers could upload images without any problems. YAF v2.24.19, no upgrades were done in a month or two.

There is a new host setting, where you can define the max image dimensions width & height. If the images are bigger there are automatically resized.

Ok, I found that new setting and uncheked the Resize User Posted Images: option:

 Resize User Posted Images.png You have insufficient rights to see the content.

Judging from the accompanying description, this should have helped. No. Only changing the Max Width and Max Height fields to bigger values helps!

Am I understanding anything wrong?

That is correct that setting you are refering to are only used for user posted images via the img bb code tag. Not the image Attachments!

The word 'below' at the end of the unchecked option description misleads. Does it mean that the values of the Max Width/Height fields are also applicable to the img bb tag? I think, you need to rewrite the description for better understanding.

Yes actually it is used for both.