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By choosing a size from the drop-down list you define the resolution and aspect ratio of the outgoing stream. Picking the same (or at least a multiple unit) in regards to the captured desktop region and Live Input setting will give you the best result.
Choose whether the frames of the stream are to be encoded as jpeg or png format.
If a size has been picked that does not match the captured desktop region, the pixel within the new width and height have to recalculated. Choose whether the calculation should base upon 1:1, Cubic, Linear or Soft interpolation.