Friends of mine have mentioned that they have been confused by the Compilation checkbox in the song info dialog. Here's the result of my experiment into what it actually does.
There are essentially two types of compilation: a collection of songs from different artists or a collection of songs from a greater body of work by the same artist.
The Compilation tag is useful in smart playlists. You can find all songs from compilation albums by searching for checked songs.
The Compilation tag appears to primarily serve a behind-the-scenes function. When you check the Compilation checkbox, iTunes reorganises all the songs with that tag into an album folder and puts the folder in a Compilations artist folder in your iTunes music folder. This means far less artist folders for what might be one or two songs each. The folder structure is more efficient and if you wanted to go looking for songs from the album, you could find them all in the Compilations folder.
That makes the Compilation tag very useful for the first type of compilation I mentioned above, but it's confusing when you use it for the one artist. You can look in your iTunes music folder and discover that you apparently are missing one or two albums for a particular artist, only to discover them in the Compilations folder.
Moral of the story? My advice is to only check the Compilation checkbox for those songs that come from an album containing multiple artists. If you want to listen to a compilation from the same artist, you can easily find it under the artist name in iTunes or the artist submenu on the iPod.