uTorrent FAQ

Turn on "Pre-allocate all files" in Downloads. Turning on this option will prevent compact storage from working, however. Pre-allocate no longer allocates all files when skipping files, only the ones you choose.

There is little use to pre-allocate except for making sure you have enough space when starting a torrent. It does NOT reduce fragmentation as compared to not using it, since uTorrent ALWAYS allocates the full file when writing to prevent fragmentation, regardless of if pre-allocate is on (unless you use sparse files).