FLAC provides lossless audio compression. In regular English, that means it provides the highest quality possible. As such, we recommend using FLAC whenever possible. An addtional benefit is that the FLAC encoding is very fast, and much faster than MP3 encoding.
However, many hardware MP3 players (like the popular iPod series) do not support FLAC (for some bizarre reason that we don't understand). With MP3 being ubiquitous on virtually every hardware portable audio player, the LAME MP3 encoder provides flexibility, although it will not produce the same lossless quality as FLAC.