When does the Setup damage card get dealt? Is it during the place forces step? Does it go initiative order? If not, can I do the Kaz's Fireball to narrow what I can deal for other Fireball's down to 32 cards?

Welcome to the fantastic land of "Ill Defined Timing of Setup Step!" There's no definitive answer, as this card lacks some of the direct timing instructions that others have. MY best guesses are:

1. Gather Forces: When you first present your list to your opponent, you deal (or choose) damage cards, in the order of your choice. This has the benefit of taking place before anything else, making it almost impossible to miss or manipulate.
2. Place Forces: As you place ships onto the battlefield, you deal (or choose) damage cards. Since this would happen by ship initiative, it has the greatest strategic impact on your forces.
3. Prepare Other Components: Once all ships are deployed, you deal (or choose) damage cards, in the order of your choice. I personally favor this interpretation , as far as the rules go, because this is also the step when each player formally prepares their damage decks... before this point, no damage deck formally exists in that particular game. These choices would be made in player order (if both players have Fireballs on their side); then, each player would deal (or choose-and-deal) damage cards in the order of their choice.

To be honest, if I were flying several Fireballs, including one with the Kaz title, I would deal cards directly to the rest, THEN go through my deck to choose the final card. That way, I would gain information about what crit cards were waiting under my other ships, and would have some indication of how bad it could be, to activate their ability. If a lot of Direct Hits are missing from my deck, for example, I might not want to SLAM as much.

Interesting question. I'll throw my two cents out to the world:

Currently, all your Fireballs' Explosion with Wings happen at the same time of 'Setup', however poorly defined that window may be. Since they happen at the same time you choose the order. @emeraldbeacon makes and excellent point with his #3.

That being said I could totally see FFG ruling that it is in initiative order.