"Wave" is sound that is generated from digital waveform data fed to the sound card from the CPU. This includes game sounds as well as ventrilo speech. Sources that are not "wave" include your microphone, line-in, and analog CD-in.
Feedback/echo is caused by your microphone picking up sounds from your speakers/headphones, then being amplified and retransmitted back to your teammates. It's REALLY annoying.
Reducing either the "wave" or "master" volume will help reduce the echo your teammates hear, but then it makes it that much harder for you to hear the game and your teammates! A better solution is to increase the isolation between the microphone and the speakers/headphones. Make sure your desktop speakers are muted and ONLY the headphones are generating sound. Also try orienting the mic so it only picks up your voice and not anything else. Bring the mic closer to your mouth and try reducing the MIC volume.