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Fragmentation occurs when several downloads are running at the same time, and small bits of data are written to different files continuously - causing the data to be scattered around on different locations on the drive. Anti-fragmentation will reserve space on the hard drive, thus putting all the file's data in the same physical space on the hard drive.
Fragmented hard drives become slow, because the drive needs to jump around to collect the file's data. Running windows' defrag software can "fix" fragmented data.
Anti-fragmentation function is mandatory and cannot be disabled since DC++ version 0.706. Make sure you always have enough free space in the drive where your unfinished downloads folder resides or you can easily get error messages when large files start to download.