‘HVEC Sources Only’ is generally the best option for Transcoding, especially as intel Quicksync really shines at AVC transcoding, so you wouldn’t want to transcode AVC media to HVEC (‘Always’ setting), it would just result in higher CPU usage.
I don’t think the Optimization setting affects on the fly transcoding. But is for if you manually optimise your media for different scenarios within Plex. (Creating Optimized Versions -Support)
