finlander:
So why have a compression setting for large images, if large images never get compressed when they are served as large images? In other words, when does the large image compression setting actually work? The small image compression setting works when the image is served in the small size, and likewise for the medium served image, but I still cannot see what effect the large image compression setting has on either stored images or on served images.
You are misunderstanding what Diva is saying, Large images are compressed when they are copied to the image handler cache and this compressed large image is what is normally served, (unless you have cocked something up, or you are using lightbox, slimbox, fualbox, choclate box and havent merged the files correctly).
Note the word Copied in red above
The large image you upload is not touched by image handler except to make a copy of it and compress that copy and store that copy in the image handler cache.
Your original Large image is left untouched so that, at some stage in the future, if you change your watermark or the size you want the large image to display at you can just upload the new water mark set the new sizes for images, clear the image handler cache, and your new images will work straight away.
If image handler did actually overwrite your original image, you would have to reupload all the product images on your site, whenever your branding (and watermark) changes.
A link to your site to see what the issue is might help
Also what happens when you right click on the large image lightbox gives you does it tell you the name of the image (never used lightbox, slimbox etc)