Vanilla uses the original palaces from the game
Shuffled uses all of the original rooms from the original palaces, but moves them around. The palaces will be the same size as they are in the original game.
Reconstructed will construct new palaces from scratch. These palaces will be +/- 25% of the size from the original palaces. It will only contain vanilla rooms (unless the community rooms option is selected, see below), however it is possible that the rooms will come from different palaces, or even show up multiple times within the same palace. This option attempts to make palaces in a similar fashion to the original game:
Palace 1 - no blockers
Palace 2 - may be glove or jump blocked
Palace 3 - may be glove or downstab blocked
Palace 4 - may contain drops, may be fairy blocked
Palace 5 - may be fairy blocked
Palace 6 - may contain drops, may be fairy or glove blocked