When on, the delay compensation affects all configurations described in “Delay Compensation rules” below.
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In other words, Reason doesn’t measure any latency of the effect devices. However, you can manually adjust the delay compensation if needed (if things sound wrong due to plugins reporting wrong latencies etc.). See “Manually adjusting the latency values” for more details.
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What Reason then does to compensate for the inherent latencies in effect devices is to automatically add “invisible delays” to the signals of the other mixer channels. The goal for the delay compensation is to have all mixer channel signals arriving at exactly the same time to the Master Section of the main mixer.