For instance, If I want to send an email to free members (32,000) of them about a discount and I use the mass mailer. When I click "Start mailing" does it right then try and send 32,000 mails???. I really hope that isn't the case.

Not possible with any direct settings. The number of emails is hard-coded in the code.

What I'm trying to find out is. How is the number of emails Oxwall is sending controlled? Or is there no control?

I just don't want to be banned from the major email providers for violating their email policies. 

So are you saying there is a fixed number of email Oxwall will send on each cron run?

Yes.

For every 5 minutes, 50 emails will be sent.

If you want to change that, change the code as below.

File: ow_system_plugins\base\cron.php

BOL_MailService::getInstance()->processQueue();

to

BOL_MailService::getInstance()->processQueue(10);

This will send 10 mails for every 5 minutes.

Fantastic, thank you!