V-Sync is the following: (Simplified, I hope)
When a CRT draws an image on a screen, it starts one corner, then paints the dots on the screen like a person reads a book.
A period of time elapses from when the CRT finishes drawing one screen, and is moving from the bottom-right to the top-left corner of the screen. (At least for argument's sake)
A 3D video card has what's referred to as a 'frame buffer' that holds what is 'on the screen'. A frame buffer can be thought of as a single frame in a movie reel. It is shown until the contents of the frame buffer are changed (like when a movie projector swaps to the next frame).
Unlike a movie camera, however, the video card is frantically drawing everything in real-time. It only has a fraction of a second to draw the entire frame, then swap it with the one in the frame buffer.
Having V-Sync turned ON will:
Ensure that the video card draws each and every frame in its entirety. The downside here is that if the monitor finishes drawing the previous frame onto the screen before the video card finishes the next frame, the monitor will have to display the 'old' frame again a second time while the 3D card finishes 'catching up'.
Sometimes the card finishes drawing several frames before the monitor finishes drawing just one. The most recent 'complete' one is displayed next.
Now, this definately hurts the maximum number of FPS that is shown by the program, as it is limited to the monitor's speed. (Vertical Refresh speed, usually 60-120 per second, depending on the abilities of your monitor).
This is a REAL big deal to game enthusiasts, who want to be able to say their machine can crank out more FPS's than their buddy's. It also (on paper) makes the 3D card look slower than it is (as you don't know about the frames it draws, but 'throws away').
Enter turning V-Sync OFF:
This will allow the video card to swap the frame the monitor is drawing *before* it finishes drawing an entire frame.
eg.: you can have three visible frames displayed for every screen pass: The top third of the screen has the top third of frame one, the middle third of the screen shows the second frame, and the bottom third of the screen has the bottom third of the last frame.
If you imagine a movie frame cut up like this, there is a visible 'tearing' effect, because the object on the screen has moved since the previous frame. So the drawn frame looks like three staggered pieces.
3D (game hardware) tweakers love this: Their FPS numbers can shoot through the roof, and it shows how fast the card is actually capable of drawing video. (because if vsync is turned ON, it throws out these 'extra' in-between frames) This is how you can get a program to say it has 200 FPS on a monitor that can only display 60.
Fortunately for us humans, we (usually) can't even notice the staggering of the frames, because it is almost always in a different part of the screen, and also because of how our brain makes a series of discrete pictures seem like a fluid motion.
In other words, having VSYNC turned ON will technically result in a higher quality individual frame, at the (debatable) cost of some quality in motion 'smoothness'.
Having vsync turned OFF results in a lower quality individual frame, but with a (arguably) greater perception of smoothness of motion, as well as a higher FPS number to brag about.
The vsync setting has nothing in it that can cause physical damage to your computer hardware.
The worst thing you can notice is some of the 'tearing' effect I attempted to describe by turning it off. If it bothers you, turn Vsync back on.
As for window or full-screen, windowed mode will run slower, less fps, than full-screen usually. The extra drawing for the window and the rest of your screen takes longer. In full-screen mode, Reflex gets all the drawing time.
The 3D (sim) part of the drawing is entirely separate from the 2D (rest of windows) part of the drawing. It's usually an entirely separate part of the graphics processor. They can be run entirely separate from each other, and completely parallel to each other. In fact, the 2D part is often still drawing the regular windows desktop the entire time a 3D app is running full-screen, it's just that the 3D app covers up the 2D part before it gets drawn.
Any 3D picture is just drawn to the size of the window it's in, and is then passed onto the 2D section -- it makes absolutely no difference if the window happens to be 'full screen' or a maximized window, or a small window. The only thing that matters is the size
of that window. If you're running at 800x600 in full screen, it does the exact same thing as if you're running a 3D window that is 800x600 with the monitor res at 1280x1024. The 3D-part is just a shrunken window placed inside the 2d part, and it takes no more time to put it into a window than it does to display the entire screen.
2D drawing is very, very, very fast, requiring very little processing power. Any 2D drawing done in windowed mode is typically a zero-time thing, because literally nothing in the 2D part of the screen has changed. (unless you are playing a DVD in the background for some reason)
Exceptions to this rule are if you are running multiple 3D apps at once, all of them windowed. Then the graphics card has to 'slice' its time, taking processing time away from the sim. For most home and business users, this is a non-issue, as only one 3D app is ever running on screen at once.
(A $1500 FireGL, Quadro, or similar 'pro-grade' video card can do multiple 3D apps at once; but this is a rather small specialty market, usually for CAD or engineering tasks.)