How to choose optimal archiving settings
When creating a new archive, you are presented with several compression related parameters on General options page of "Archive name and parameters" dialog. First you need to select the archive format, which can be RAR, ZIP or RAR5. ZIP is preferable if you are not sure that receiver of your archive has WinRAR or other software able to unpack RAR archives. Otherwise it is recommended to choose RAR, which supports more functions and higher compression. "RAR5" is the latest version of RAR format introduced in WinRAR 5.0. While it includes many important changes like AES-256 encryption, more efficient recovery record, larger dictionary sizes, older software including older WinRAR versions is not able to decompress RAR 5.0 archives. So you need to take compatibility issue into account when selecting RAR5 if you plan to provide created archive to other people.
Regardless of the archive format the next step is selection of compression method. You can choose among "Store", "Fastest", "Fast", "Normal", "Good" and "Best" methods. "Best" provides highest, but slowest compression, "Fastest" compresses poorly, but is very fast, "Store" adds files to archive with maximum possible speed, but without any compression. "Fastest" might be more suitable for daily backups, "Best" for Internet distribution, "Normal" for everyday use like compressing email attachments.
If you selected the ZIP archive format, your preparations are finished at this stage. In case of RAR and RAR5 there are two more important options affecting compression: dictionary size and solid archiving mode.
Compression dictionary is the memory area used by compression algorithm to find and compress repeated data patterns. Larger dictionary frequently improves compression of big files, especially in solid mode, but it also leads to slower compression and higher memory requirements. Normally we recommend to use 4 MB dictionary for RAR format and 32 MB for RAR5 (RAR 5.0) archive format. You can read more about the dictionary size here.
"Create solid archive" option compresses files as single contiguous data stream resulting in higher compression ratio when processing many small similar files. But it also reduces speed of further archive modifications and increases amount of data loss in case of archive damage. This mode is explained in details Solid archives topic.
These are all the main settings, which affect compression ratio and speed. Actually, you do not need to set them before every archiving. Simply select your favorite default values once in the default compression profile, which can be created in Compression settings dialog.