Under the options menu there is a checkbox for create backup files but I can't find a reference as to where these files are located when performing a compare.
A simple test would have also answered your question.
The configuration option Create backup copy for files creates a copy of a file before saving modifications in the same directory by appending ".bak" to the original name of the file.
For example:
C:\Temp\Test\Test.txt
is backed up as
C:\Temp\Test\Test.txt.bak
The configuration option Create backup copy of zip archives for zip archives creates a copy of a zip archive before repacking a zip archive in the same directory by inserting "Bak" before ".zip".
For example:
C:\Temp\Test\Test.zip
is backed up as
C:\Temp\Test\TestBak.zip
The configuration option Create backup copy for files creates a copy of a file before saving modifications in the same directory by appending ".bak" to the original name of the file.
For example:
C:\Temp\Test\Test.txt
is backed up as
C:\Temp\Test\Test.txt.bak
The configuration option Create backup copy of zip archives for zip archives creates a copy of a zip archive before repacking a zip archive in the same directory by inserting "Bak" before ".zip".
For example:
C:\Temp\Test\Test.zip
is backed up as
C:\Temp\Test\TestBak.zip
Best regards from an UC/UE/UES for Windows user from Austria