Compress an image to 200 KB

Usually not, and that is the main reason to prefer this target when you have the choice. Ordinary photographs up to about two megapixels reach 200 KB at their full dimensions, so the tool only has to trade quality. It will still reduce the pixel count if a very large image leaves it no alternative, and it says so in the result when that happens.

For a single page of ordinary type, generally yes - which is what makes this the sensible floor for anything containing text. Sharp black-on-white edges are the first thing lossy compression damages, and 200 KB leaves enough budget for them to survive at readable size. Below about 100 KB the same page starts to look soft, and at 20 KB it is usually beyond recovery.

Because the search stops at the top of the quality range rather than padding the file to fill the allowance. If your image encodes cleanly at the highest quality setting and still comes out at 120 KB, that is the answer - there is nothing to gain from making it larger, and a smaller file that meets the limit is strictly better. The number shown is the real byte count of what you download.

200 KB is a good default for anything being uploaded to a form or an application, and it is where most photographs still look genuinely good. Larger targets mostly help when the image is big in pixel terms - a 3000 x 2000 photograph has real detail to preserve and benefits from the extra budget. For anything under about two megapixels the visible difference above 200 KB is small.

They are filled with a solid colour before encoding. The output here is JPEG, which has no alpha channel to put them in, and JPEG is used because it is the only widely supported format whose file size can be searched down to a specific number. If those areas matter to you, this is the wrong tool - the ordinary PNG compressor leaves the alpha channel alone and trades size a different way.