Does anyone know what exactly is this "compact and truncate" feature?
The closest thing to a description I could find is this:http://support.microsoft.com/kb/814594
NTFS Master File Table (MFT) Expansion
When an NTFS volume is created and formatted, NTFS metafiles are created. One of these metafiles is named the Master File Table (MFT). It is very small when it is created (approximately 16 KB), but it grows as files and folders are created on the volume. When a file is created, it is entered in the MFT as a File Record Segment (FRS). The FRS is always 1024 bytes (1 KB). As files are added to the volume, the MFT grows. However, when files are deleted, the associated FRSs are marked as free for reuse, but the total FRSs and associated MFT allocation remains. That is why you do not regain the space used by the MFT after you delete a large number of files. Currently, only third-party defragmenters consolidate unused MFT FRS records and reclaim unused MFT allocated space.
Is that what Paragon refers to as "compact and truncate"?