How to record 720p Terraria gameplay correctly?

[CA9526]

My computer isn't a toaster. However, it is lagging to play Terraria in 1080p while recording with OBS so I changed the resolution to 720p. The recording resulted in this. Anyone can suggest a solution? Thanks. It will be better if providing a solution to record a smooth 1080p gameplay.

UTC 0145 Update
Apparently my canvas is 1920x1080 but my Terraria is 720p. How to solve that?

 

[Kraezy]

If you're playing Terraria at 1280x720 then.

Base Canvas: 1280x720
Output (Scaled) Resolution: 1280x720
Downscale Filter: Bilinear

Right click on the source (game cap or display cap) > Transform > Reset Transform (or CTRL+R)
or
Right click on the source (game cap or display cap) > Transform > Fit to screen (or press CTRL+F)

 

[CA9526]

If you're playing Terraria at 1280x720 then.

Base Canvas: 1280x720
Output (Scaled) Resolution: 1280x720
Downscale Filter: Bilinear

Right click on the source (game cap or display cap) > Transform > Reset Transform (or CTRL+R)
or
Right click on the source (game cap or display cap) > Transform > Fit to screen (or press CTRL+F)

It really works. Thanks!