Having various compression/quality options allows you to pick the tradeoff (file size/resulting quality) that is acceptable for your situtation. There is no perfect setting for all situations. Even the original bitmap is an imperfect (i.e. lossy) rendering of the original document.
I don't expect the scanner to have any semantic awareness of the document content, so when I hear "lossy compression", my expectation is "image may become illegible", and not "image may remain legible, but become inaccurate".
The issue only involves small letters, because the compression scheme breaks up the image into patches and then tries to identify visually similar blocks and reuse them. Certain settings can allow for small blocks of text to be deemed identical, within a threshold, and thus replaced. That's all. Coincidence, not semantic awareness.
Hence the advisory notice to use a higher resolution -- smaller block sizes.
A document will be covered in numbers, and the compression algorithm looks for similar blocks it can re-use; the side effect is sometimes it says "that blurry 4 looks pretty close to this blurry two, so I'll just store that block once and reuse it"
The problem is that this is a minor side effect to a programmer and an absolutely massive issue to an end user that no-one had thought of previously, and now we all have to be worried that all our scanned documents might be incorrect. (just because this was found in fuji-xerox scanners doesn't mean other brands don't also have the issue)
According to Adam (https://news.ycombinator.com/item?id=6156418) this is a known problem that Xerox, who call themselves document people for crying out loud, should have known and compensated for.
