Compounding attribute lets you derive a unique data records in the reporting.
Suppose you have a cost center and cost accounts like this and you want to maintain proper relation:
Cost centers: 1000, 1001, 1002
Cost accounts: 9001,9001,9003
The cost accounts are not unique across cost centers and the master data will be over written.
So the cost accounts across cost centers cannot be differentiated.
When you add the cost centers ac compounding attribute a unique record will be present. After compounding the records will look unique like below in reporting:
9001/1000
9002/1000
9003/1000
9001/1001
9002/1001
9003/1001
9001/1002
9002/1002
9003/1002
Thus differentiating each cost account across cost centers uniquely.