The backups complete successfully, however I see the below error.

Will this error go away if I select optimize for file system with large number of small files (see screen shot) ?

Error Code: d7:331] Description: High amount of data to be processed in FailedFilesRetry phase is observed with bulk of the data coming from big files that can be more efficiently processed by enabling optimized backups via extent level. Review documentation to proceed. Source: ...., Process: clBackup