The compounding staking pools work via two separate contracts. The first contract is called MasterChef. This is the staking contract where the pools are added and where the funds are staked and claimed from. The owner uses this contract to add new pools or update pool values. The MasterChef contract alone is a normal staking contract and cannot compound users' rewards.
The second contract is called the Vault or Compounder. The users interact with this contract to stake and withdraw. This contract also contains the harvest bounty functionality. Users deposit tokens into the Vault contract, which in turn stakes them in the MasterChef contract. The Vault contract will assign a number of shares to the users as they deposit, which equates to their share of the total amount staked by the Vault. The Vault can claim rewards earned at any point, which allows users to compound everybody's stake in the pool. This is what harvesting the bounty is. When a user harvests the bounty, the Vault contract will claim all the rewards earned so far and re-stake them for each pool. This allows the Vault to act as one large user who can compound their rewards.
In summary, the "Claim Bounty" function offers an additional reward to users who contribute to the compounding of staking rewards and the regular rewards they already receive. This additional reward is a way to recognize and incentivize active user participation in maximizing gains for the entire community.
This feature is also called when users deposit or withdraw on specific pools to assure the pools are at least compounded on daily bases.
The bounty percentage to be set up in the Staking portal is the percentage of rewards earned so far that have not been compounded, which will be given to the bounty claimer.
Keep in mind
Compounding only occurs when the pools are not full; otherwise, there is no room to stake the earned rewards. Users still receive rewards for calling the claim bounty button when the pools are full, as they are technically updating the values for earned rewards for all other users.