If you change a settings that affects the resulting file size (average bitrate), then any
visual comparison of the files of
differing size will be unfair/tainted! The bigger file will usually look better, yes, simply because it was allowed to use more bits. But you could, just as well, have used a higher target bitrate (or lower CRF), instead of changing that setting, to get the same (or very similar) effect. So, in the end, you didn't learn anything about the setting you wanted to test
For a proper
visual comparison, always use
2-Pass mode with
same target bitrate for
all files. This will allow for a proper fair/unbiased visual comparison of the resulting files. And, of course, the bitrate you choose for the test should neither be too high (where the differences fade away and
all files just look very good) nor too low (where
all files look equally bad). Just use something "sane" that you would use for you normal encodes.
If you do this kind of "fair" test, then the effect of
--fade-compensate becomes more clear: It moves more bits to "fades" - or to where the encoder "thinks" there are fades. And, of course, these bits will be
missing somewhere else! So, you get better looking fades (hopefully), but the "side effect" is that you get (somewhat) reduced quality everywhere else! Whether this gives more pleasant
overall result - at a certain target bitrate (target file size) - is up for debate
I think this is also the reason why the
--fade-compensate patch was never officially committed into x264: It's more a workaround for the symptom ("throw more bits at it and hope it helps") rather than a proper fix of the underlying problem.