Hi Ummar,
As you know some hardware units uses 5Volts and 0Volts levels for I/O. Thats means that the signal travels out from the unit with the logic '1' equals 5 volts and logic '0' as zero volt. However, many encodings are availble such as Manchester encoding, NRZ, HDB3 encoding etc..
For spartan it just changes the voltage levels of 1's and 0's, i.e some I/O standards uses 2.5 Volts for logic '1' and voltage below 0.8 Volt for logic zero.
To summarize, the I/O attribute for spartan-3 defines the voltage levels that represent 1's and 0's. Now read the datasheet to choose an appropriate voltage level.
Best wishes,
Sameh Yassin