In my experience, settling is a bad idea.
It isn't fair to you or the other person because this will eventually build a ton of resentment: for you because if you truly look at it as "settling," you will unconsciously carry with you the idea that your partner is less than what you really deserve, and who can build a meaningful relationship of trust on that foundation, right?
It's unfair to your partner because eventually he or she will find out that he/she was the object of your charity, pity or just plain apathy by your decision to "settle" on him/her and trust me, that sucks. It's incredibly hurtful to discover that the person you cared about isn't that into you and would drop you in a heartbeat once something better came along.
Some people can be with another person who is less than their idea mate though, and view it as making the best of the situation, and really work to make it better by finding common ground. As soon as anyone starts to view it as "settling" though, it's done.
Also, a lot of people place too strong an emphasis on physical, thinking that physical compatibility is all that one needs to carry a relationship.