Am not able to figure out the proper balance between threshold and out ceiling in Waves L2 and the audio is getting distorted.How should I settle this?To be more specific,how should I set the threshold and out ceiling values so that the project goes smoothly?

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Assuming it is the last plugin in your chain & you're using it it as a 'mastering leveller' then I'd set the out ceiling to just under zero. I find -0.3 avoids nasty crunching even on cheap playback systems & it survives format conversion well.

Then it's just a matter of dialling down the Threshold until you can feel the compression happening, then drop it back a bit.

The only way to really know is by ear, there's no hard & fast rule, & it also depends on your programme material.
Winding it in too hard will just make things sounds very nasty.
Also, don't be tempted to try to make it sound like the radio - they do that at broadcast & trying to do it twice just doesn't really work.
Investigate the Loudness war for background on that.

Gentle comp/lim, occasional peak being limited...

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Way too much, pumping badly...

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One method I sometimes use is to change your out ceiling temporarily, so that when you switch the plugin off you hear a similar output volume. Then you can toggle on/off to test how much compression you're really adding & whether it is making things sound better or just louder.
Once you're happy, reset the ceiling to -0.3 before export.

Of course, if you're using it as a special effect rather than mix output limiting, then you can do whatever you like with it.

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