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You have selected DXT compression. DXT is a very efficient compression type for world textures. Textures stored in DXT use far less space, but they degrade the image quality significantly. It is NOT recommended to compress GUI textures.
DXT1 is good for textures that use alpha for cut-out regions.
DXT2/3 is good for textures with sharp alpha.
DXT4/5 is good for textures with smooth alpha.
If your image has no alpha, just pick DXT1.
Be careful which textures you compress and which type you choose!