See About Fanout for more information on dataset fanout.
See Setting Dataset Fanout for more information on setting dataset fanout.
The fanout settings in the Feature Type Properties dialog allow you to use that specific feature type as a template for dynamically created feature types.
Feature type fanout means that many feature types will be created from one template feature type. How this actually appears as output depends entirely on the format. For example:
on an destination feature type.
You can combine Feature Type and Dataset Fanouts.
For example, if you are working with a folder-based format and you perform a feature type fanout on attribute A and a dataset fanout on attribute B, then you'll end up with multiple folders of files, with the filenames dependent on the values of attribute A.