What is antialiasing mode?

Solution
Antialiasing is a good thing. This is basically the kind of thing it does:

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Antialiasing is not blurry, except for poor antialiasing types like FXAA.
 
Aliasing is the stair stepping effect of trying to make non horizontal or vertical edges on a display that has a fixed grid of pixels. This is shown well on the 1st replay to your post.

Anti-aliasing is a method to fix this stair stepping effect by blurring the edges. There are many different types of AA (short of anti-aliasing), but MSAA is probably the most common.
 


FXAA causes a lot blurring on the whole screen, so it is more complained about, but all forms of AA cause some form of blur. MSAA is more precise on what it blurs. It blurs the edges of objects, and only the edges, which are the most obvious forms of aliasing. SSAA blurs the whole screen, but with help from the game, it won't blur text and as it gets more information than FXAA, it blurs less.

But yes, AA is a blurring technique to disguise jagged edges.
 

FXAA blurs. MSAA and SSAA do not blur, they make the image more closely match the source. Eg. a slanted line does not somehow devolve into a stair-step pattern, it stays straight. A brick wall doesn't get a weird aliased pattern, it looks like a regular brick wall. A power line swaying in the wind doesn't shimmer, it looks solid.
 


And how do you think they go about making those staircase patterns look straight? They blur the edges. They average out the colors between the line and the background so it does not stand out. Look at the pictures you posted. Those lines are not straighter with AA, it scales the colors next to the line to make it blend (blur) into something that looks straighter.

I understand that the term "blur" is a bad word, but it is not in this case. MSAA blurs the edges of objects to hide those staircases, just as SSAA will apply it to textures and transparencies as well.
 


Yes, the downsample, but downsampling will average out colors between pixels to approximate the original. It does not create straight lines and blurring is the effect that occurs when averaging out those colors.

It is still a form of blurring and downsampling does cause blurring, which is why I rarely use it.
 


They both are visual artifacts. Usually AA looks better, but I do not like FXAA or MLAA much. In rare cases I may use them. Downsampling can look better in some games, but it causes artifacts as well, because it averages things out, and that isn't always good. Examples: Skyrim looks good with downsampling, Dragon Age: Origins looks poor with downsampling. The main reason I do not like it with Dragon Age: Origins, is the smaller text becomes deformed with downsampling, while Skyrim uses over sized text, so the averaging out of pixels doesn't cause distortions.

Mostly, I always prefer MSAA, as it is controlled by the game, and only fixes the outer edges of objects, so it doesn't cause textures or text to become blurry. SSAA, is a lot like downsampling (pretty much identical), only SSAA works with the game, so it doesn't apply to things like text, and what ever the game dev's tell it not to touch. However, it isn't always perfect either and has a huge performance hit.