• Create optimized media: This option transcodes video to the
Apple ProRes 422 format, which provides better performance during editing, faster render times, and better color quality for compositing. If the original camera format can be edited with good performance, this option is dimmed.
• Create proxy media: This option creates video proxy files. Video is transcoded to either the
Apple ProRes 422 Proxy or
H.264 format. You can create proxy media in a variety of frame sizes from 12.5 percent to 100 percent of the original. Proxy files increase editing performance and take up considerably less storage space than optimized files.
https://support.apple.com/guide/final-cut-pro/create-optimized-and-proxy-files-verb8e5f6fd.9/mac.6