Re: "files are compressed"

If you use this setting it will try to create or extract from the type of archive the profile is set to handle, as indicated by the file extension. As per the Help, SyncBackFree can only handle

normal type of compression used by the older Zip format

so .zip archives are the only ones it will try to extract from if you point it at a fileset and tell it 'Files are compressed' on that side. Anything else would be simply ignored, as I stated previously.