Yes, I have read this but I would like to understand the background to make decent decisions on future hardware purchases ("compatibility mode" sounds like "performance impact")
No, it's much the same as "32-bit compatibility mode" in the x86 software context. The GPUs are broken, not quite spec compliant, so IBM had to introduce additional kernel handling to work around that. Therefore, "compatibility with old broken GPU hardware", or "compatibility mode"
If they were not broken, the extra "compatibility" code would not be needed. You can of course run them in 32-bit mode, but when you exhaust the 32-bit space you'll get GPU memory allocation errors and that very well might crash X or your applications (or the machine, since GPU drivers don't generally handle errors well).