For the first point, my expectation is that when I don’t set anything, the original image files would be converted to webp or avif and then the original files would be deleted to reduce storage space.
For the second point, my expectation when I set “Output fallback images” is that after the image conversion, the original files would be preserved, and the media library would primarily display the converted format.
If I additionally set “Generate all fallback image sizes”, it would not only convert the image files but also preserve the original files and the various sized thumbnails generated from the original files. Thank you for your reply.