The captions are 'generalised' because their meaning varies with context and data-flow direction. That is, they mean either 'expect compressed files' or 'create compressed files', depending...
If you use it, you are telling SB to compress to and/or extract from Zips during various operations on that side. For example, a Backup set with 'Files are compressed' on the Destination will Compress the raw Source files as it copies them to Destination, so that the Destination has Zipped copies (and will conversely extract from Zips on Destination to raw files on Source if run as a Restore).
Whereas you could also use it to copy Zips (created by something else on the Source) to your Destination, and extract them at the same time. Some people wanted that...(and still do)
Mixed files (Zips and not-Zips) are not necessarily a good idea. What will happen depends 'what is where' versus 'what you set'. If you have mixed Zips/not-Zips in Source, and set it to 'Files are compressed' on Destination, it will Zip all the Source files (including the Zip files 'again', so you get Filename.zip.zip) during the process of copying them (now compressed) to Destination.
If you start with the same mixed file set on Source and select 'Files are compressed' on Source, it will try to extract from the Zips on Source (and output the resulting uncompressed files to Destination). It will ignore the non-Zip files on Source altogether, because you just told it to expect Zips, so that's what it (only) processes.
Once again, these last two examples depend on data-flow direction. They assume for purposes of illustration that you are copying from Source to Destination.
If you use it, you are telling SB to compress to and/or extract from Zips during various operations on that side. For example, a Backup set with 'Files are compressed' on the Destination will Compress the raw Source files as it copies them to Destination, so that the Destination has Zipped copies (and will conversely extract from Zips on Destination to raw files on Source if run as a Restore).
Whereas you could also use it to copy Zips (created by something else on the Source) to your Destination, and extract them at the same time. Some people wanted that...(and still do)
Mixed files (Zips and not-Zips) are not necessarily a good idea. What will happen depends 'what is where' versus 'what you set'. If you have mixed Zips/not-Zips in Source, and set it to 'Files are compressed' on Destination, it will Zip all the Source files (including the Zip files 'again', so you get Filename.zip.zip) during the process of copying them (now compressed) to Destination.
If you start with the same mixed file set on Source and select 'Files are compressed' on Source, it will try to extract from the Zips on Source (and output the resulting uncompressed files to Destination). It will ignore the non-Zip files on Source altogether, because you just told it to expect Zips, so that's what it (only) processes.
Once again, these last two examples depend on data-flow direction. They assume for purposes of illustration that you are copying from Source to Destination.