Simple definition
A virtual machine compatibility level determines the virtual hardware features available to a guest.
Purpose and use
A VM compatibility level determines a set of virtual-hardware capabilities and the platforms that can support them.
How does it work?
It connects the presented virtual hardware with compatible hypervisor versions.
Example and verification
Before upgrading, check every host that may need to run or receive the VM.
Points to watch
The newest level may not work on older hosts. An upgrade can complicate rollback.
In short
Compatibility must cover the VM’s complete operations and recovery path.