Basically, the allocation unit size is the block size on your hard drive when it formats NTFS.
If you have lots of small files, then it's a good idea to keep the allocation size small so your hard drive space won't be wasted.
So for example if you only have 1k files but have an allocation of 1024, then only 1K of the 1024 is being used and 1023K is not being used
If you have lots of large files like we see for video files, keeping it higher will increase the system performance by having fewer blocks to seek.
As an example, I did a file properties on a random folder on my computer. In this file folder, the actual data is 7.93GB, but it is using 8GB on the drive due to the allocation size. In other words, I have 0.07GB lost that I cannot access to due the allocation sizes. Ideally you want these as close as possible so that you don't have wasted space that you cannot access.
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So if your allocation size is too large for the types of files you typically save, then you have a lot of wasted storage space that you cannot use.