There are essentially three modes in Vegas:
8-bit (always 2.222 compositing gamma)
32-bit / 2.222
32-bit / 1.000 (this is the slowest AFAIK)
The underlying difference is:
8-bit mode versus 32-bit mode
2.222 versus 1.000 compositing gamma
There are four possible combinations, but 8-bit / 1.000 is disallowed.
More info here:
http://glennchan.info/articles/vegas/v8color/v8color.htm
(No point in re-typing my own article.)
There are some color space conversion issues to watch out for- it's more complicated in 32-bit.
2- The biggest difference between 8-bit and 32-bit is that it allows you to do linear light processing. See:
http://glennchan.info/articles/vegas/linlight/linlight.htm
But to do linear light processing you (sort of) have to go out of your way to do it.
2b- Otherwise, the other benefit you will see is improved precision. 32-bit will get rid of banding artifacts caused by not enough bit depth in processing. (Certain other types of banding it won't get rid of, e.g. if you start with an 8-bit source and go crazy with color curves. You need dithering to fix that.)
Usually you don't have problems with banding artifacts if the source is noisy or you don't have very large gradients in your footage.
