Anti-aliasing

Anti-aliasing makes the edges of your type look nice and smooth instead of all jagged. Square pixels appear round because the color at the edge of your type is gradually changed to the color of the background, creating a more blended effect. This tricks your brain into thinking that the rounded and diagonal parts of letters aren't actually made of little squares, even though they are.

If you're working with large type, you'll definitely want to make sure "anti-aliased" is selected. But if you're setting small type - font sizes in the 6- to 9-point range (at 72 pixels per inch) - aliased type is usually easier to read than the anti-aliased type. But anything above 10 points looks better anti-aliased.