I'm skimming through the book Trading Systems that I found on the recommended books on the Zorro trader site.

Wanted to make sure that I understand how to use the MAE plot correctly. Let's say that this is the result of my plot


If my understanding is correct, this graph tells me that I could Catch a bunch of negative outliers by placing a stop around 270 pips. Does this make sense? Is my understanding correct?

Yes that's correct. The maximum adverse excursion is on the x-axis and the final profit/loss is on the y-axis. So a stop loss at 270 pips would reduce those outsized losses without affecting any of your profitable trades in this backtest.