The buffer is 4MB in size, the random data generator generates only whats needed so if the file is supposed to be 4KB it generates exactly that.

Huge sets of memory could possibly work but there would be overhead using that model as well.

I have no idea about how advanced the SF controller is but I bet it's pretty good, I'm also quite sure that we're already overdoing it.
The 100% option does produce 101% files using 7Zip and that is a 1% penalty for the SF controller, not much for a few small files but for Millions of files it makes a difference.

I'm pretty sure that at some given level of compression it will simply store the data as is.

SF did once say that a full W7 + Office installation that normally would generate 25GB of writes ended up as 11GB of "stored" data.

There is also the option of using encrypted data, haven't really read up on how that impacts the SF controller.