Use the downscale dropdown box, rather than stretching sources down to fit, if possible. It gives better quality and is more efficient as well. I've tried both ways and it's a subtle difference, but the dropdown downscaler is a higher quality downsample than the stretch-down (which is pretty low-quality in comparison).
Only time to use smaller than your native desktop resolution is if you're using a capture card and the game source is smaller... at that point setting a matching base resolution and stretching the rest of the scene's items down to match would probably give a better game image, sacrificing your overlays/other captures a bit.