I'm still confused as to which I should use and when. Can you explain the differences in a little more detail?

Of what benefit is a worktree? A worktree still has the .git folder present in it, and the feature was designed for working in multiple branches at once, something that doesn't seem to be a need for FSNotes.

The worktree also needs to have a branch, so what do you name this branch?

The option for a .git folder in the project dir doesn't seem to be allowed for the ICloud Drive folder, but I don't see how git worktrees solves this problem since the .git folder is still present in the worktree. Can you not use the git option at all if your notes are being saved to the iCloud Drive folder?

Thanks

Where to store the .git repository is a matter of personal preference. I don't have any recommendations on this. The default is Custom worktree. The worktree function is used to change the path to the repository and nothing more.