Text compare
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Puts two versions of a text side by side and marks what changed. Word-by-word comparison is the option to reach for with prose, where a change is usually inside a line rather than a whole line.
How to use the text compare
Line-based comparison is right for code, where a line is a unit, and wrong for prose, where changing one word marks the whole paragraph as replaced. Switching to word mode fixes that and makes an edit legible. Ignoring whitespace is the other setting worth knowing: text that has been through a word processor picks up non-breaking spaces and different line wrapping, and without that option every paragraph shows as changed for reasons that have nothing to do with the writing.
Questions
By line for code and data. By word for prose, where an edit is usually within a line.