Transcoding is done automatically by KooRaRoo Media when it detects a file that is not compatible with your device.
To determine whether a file is compatible or not, a device definition is used (also called a device profile) that lists all known formats that the device can play. Anything not listed, will get transcoded.
Device definitions are updated when new firmware comes out and new devices are added all the time as well. It is important to select the correct device profile for your device, but most devices can be auto-detected, so you don't have to worry about this.
Another way to use transcoding in KooRaRoo is to manually transcode files. This is done from within KooRaRoo's GUI (graphical user interface, or the main application window). Some files may be considered as native for the device, but they may have something particular in their encoding that prevents the hardware decoder in your player from playing them. In this case manual transcoding helps, as you can transcode the file from within KRR and this new transcoded file will be used for your device, so the file will play properly. Manual transcoding also allows you to select which video and audio stream you wish to transcode, so if there are multiple audio streams (for example), you can choose which language you'd like the resulting file to have.
You can also configure your preferred language (audio) streams via the Device settings - when set this will instruct KooRaRoo to find and use audio in a language that you understand automatically!