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As for fixed difficulty. You should use it only if you experience lower hashrate than expected. If you don't have issues then it's best to use VARDIFF (so don't setup difficulty by password).

The issues are mainly with some ASIC miners built of several chips (double digit number of chips) and if these chips are sometimes going dead/frozen. If you have 28 MH/s miner with 128 chips and VARDIFF sets your miner to send one share per 10 seconds, then each individual chip will send one share per 20 minutes if you have as much as 128 chips in one miner. If these chips tend to fall dead then the chip controller might not detect it quickly enough (to restart it) if they're supposed to send one share per 20 minutes and in result your hashrate will get down, because your miner won't be using all of its chips.

If this is the case, then you might want to try using fixed difficulty to send more frequent shares. Remember that valid difficulty values are powers of two: 128, 256, 512, 1024, 2048, 4096, 8192, 16384, 32768, 65536.

As a rule of thumb:
- if you have 16 chips or more, multiply your miner MHs * 32 and round up to the next diff value. E.g. 3.5 MH/s miner with 16 chips: 3.5 * 32 = 112, round up to 128.
- if you have 32 chips or more, multiply your miner MHs * 16 and round up to the next diff value. E.g. 12 MH/s miner with 32 chips: 12 * 16 = 192, round up to 256.
- if you have 64 chips or more, multiply your miner MHs * 8 and round up to the next diff value. E.g. 28 MH/s miner with 128 chips: 28 * 8 = 224, round up to 256.

Please never use difficulty lower than your MHs * 8.

Also, when you test everything with these values, please try to use one step higher and see if it's still OK. So if you have 12 MH/s miner with 32 chips and you used 256 and it's OK, change it to 512 and see if it's still OK, because at 256 your miner will send one share per 1.4 second and this is too frequent (and 28 MH/s miner will send two shares per second). This should be used only as emergency if your miner has issues with higher difficulty - as an exception, not a rule.

Sending more frequent shares than one per 10 seconds makes sense only if your chips are falling dead and you need to make them find shares faster (in order to faster detect if they're dead and not sending shares as expected and to restart them). Hammering the pool with one share per second isn't healthy neither for the pool nor for you (using more bandwidth) and should be used only if necessary.

So, if you don't experience issues, just use VARDIFF. If you play with manual difficulty, always please check one step higher to see if it also works fine with your miner. All this manual difficulty should be needed only for miners with falling chips where the miner controller silently restarts them if they're dead.