What is "fake host"?
The fake host option attempts to disguise the fact that you're connecting from a proxy or VPN (an IP that isn't your own). It rewrites parts of the handshake so the server is less likely to flag the connection as proxied.
When to use it
Try enabling it if you're having trouble getting your proxies or connection to work - particularly on servers that block VPNs or run extra connection checks.
For more on connection issues, see Accounts keep reconnecting and VPN blocks (full/half).
When not to use it
If your accounts already connect fine, leave fake host off - it only adds value when a server is actively inspecting or rejecting proxied connections. Turning it on everywhere won't improve a connection that isn't being blocked, and on a few servers it can introduce its own handshake quirks.
Fake host vs. a better proxy
Fake host disguises the connection; it doesn't change the IP behind it. On servers with strict VPN detection, a high-quality SOCKS5 proxy (or a Tier 3 plan) does more than fake host alone. Use the two together for the best chance of getting onto a known-blocked server.