What are the best options to use when compressing files using 7 Zip?

To create the smallest standard ZIP file that 7-Zip can create, try:

7z a -mm=Deflate -mfb=258 -mpass=15 -r foo.zip C:\Path\To\Files\*

^{Source: How can I achieve the best, standard ZIP compression?}

Otherwise if you don't care about the ZIP standard, use the following ultra settings:

7z a -t7z -m0=lzma -mx=9 -mfb=64 -md=32m -ms=on archive.7z dir1

Which are:

-t7z   7z archive

-m0=lzma
       lzma method

-mx=9  level of compression = 9 (Ultra)

-mfb=64
       number of fast bytes for LZMA = 64
-md=32m
       dictionary size = 32 megabytes

-ms=on solid archive = on

After much experimentation, digging into the detailed 7zip documentation, and reading some of the 7z source code regarding the advanced LZMA2 parameters, here is a better method below. It reduced some 1GB real-world test files more than 2 to 4 times better than the previously accepted solutions posted here or even in the 7z manpage.

7z a -t7z -mx=9 -mfb=273 -ms -md=31 -myx=9 -mtm=- -mmt -mmtf -md=1536m -mmf=bt3 -mmc=10000 -mpb=0 -mlc=0 archive.7z inputfileordir

The LZMA2 compression is assumed here, but you might be able to get even better performance in 7zip with passing advanced LZMA2 options like -m0=LZMA2:27, or -m0=LZMA2:d25, or an array of parameters like

-m0=BCJ2 -m1=LZMA:d25 -m2=LZMA:d19 -m3=LZMA:d19 -mb0:1

Such parameters didn't seem to be respected by the 7z versions I tested, but you may want to explore further or patch the 7z code to properly parse them. Or maybe it is supposed to work and is just broken in the builds that were tested.