You can select how pictures that do not fit the screen should be stretched or shrunk to give the fit you want.
When Best fit is selected, any pictures that are larger or smaller than the screen dimensions will be resized to the best fit for the screen, preserving the picture's shape (aspect ratio). Positioning settings are still used.
Full screen will stretch the picture in both dimensions as required to fill the screen completely. Obviously this is likely to distort the picture somewhat.
Worst fit is the opposite of best fit. The aspect ratio is still maintained, so there is no deformation, but the image is resized to fill the screen completely. This usually means that part of the picture will be off screen. Be careful what picture positioning you use or the results may not be what you expect.
If you check the Always shrink large pictures box, pictures that are too large to fit on the screen will be shrunk to fit even if you have selected No stretching otherwise.
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Sometimes images that are quite small in comparison to your screen size do not resize well: the stretching process can introduce unsightly jagged edges or a general lack of quality. Enforce max stretch allows you to ensure that no images are resized bigger than a ratio you select. So, if you set the ratio to 200% then no image will be resized to greater than 200% of it's original size.
You are provided with a number of resizing methods. As you move down the list the picture quality of resized images tends to be better for a corresponding increase in CPU time required to perform the process. Simply choose the one that gives the best results for you.
Bicubic is the default and should provide reasonable stretching and shrinking results on most systems for minimal CPU use. Higher spec PCs (pretty much anything that will run XP) typically benefit from using Catmull-Rom or even Lanczos.