what the setting actually controls
Terraria can draw light in four different ways, and the one you pick decides both how the world looks and how much work the game does every frame. You change it from the settings menu, and on desktop you can also cycle straight through the four with Shift and F9 while you are standing in the world. That shortcut matters more than it sounds, because it means you can switch mid-cave without stopping.
Nothing about the world itself changes. A Torch emits the same amount of light in every mode. What changes is how that light is spread across the tiles on its way out, and whether the game runs a set of full screen effects on top of the result.
the four modes
- Color is the default. Light fades smoothly from tile to tile and keeps the color of whatever produced it, so colored torches and gems tint the room around them.
- White uses the same smooth fade but discards the color, so every source burns plain white. Useful in a build where you do not want a light source staining the wall behind it.
- Retro drops the smoothing entirely. Light falls off in hard blocky steps, the way it did in the game's earliest builds. It is the cheapest of the four to run.
- Trippy uses the same blocky falloff as Retro and then pulls the color channels apart, so ordinary light sources throw bands of color unrelated to what made them. It is a novelty, but a cheap one.
the effects that ride along with it
Several screen effects are wired to the lighting mode rather than to their own toggle, and they only run in Color and White. That covers the red wash and darkened corners of a Blood Moon, the warped air around the Celestial Towers, the heat shimmer in the desert and the Underworld, the thicker blowing dust of a sandstorm, and the sepia tint of a Constant world or an equipped Radio Thing. Smoothed liquid flow goes with them.
Retro and Trippy switch all of that off. So dropping to Retro for frames also strips the atmosphere out of a lot of the game, which is worth knowing before you blame a mod or a patch for a missing effect. On console and mobile the effects sit behind their own separate option and do not follow the lighting mode at all.
retro as a vision tool
Because the blocky modes step light outward instead of fading it, the same light source ends up covering more usable ground. That is a real advantage any time something has cut your sight down: the vision reducing debuffs, and the deliberately dim Dungeon and Jungle Temple in For the Worthy and Zenith worlds. Flip to Retro before you go in, read the room properly, then flip back with the same key when you are out.
The blocky modes also run particles harder. Torches spark more often, gold chests sparkle faster, lava bubbles more. There is nothing behind it beyond the game having spare time now that it is not smoothing anything.
which one to run
If your frame rate is fine, stay on Color. It is the only mode that shows the game as it was designed to look. If you are dropping frames, the two expensive pieces are the smoothing pass and the screen effects, and Retro removes both at once, which is why it does more for performance than any other single video option. White sits in the middle and is mostly a taste decision rather than a performance one. Trippy costs about what Retro costs, so run it whenever you feel like it.