"Composite" window managers, such as Beryl (which is now defunct) and Compiz, provide 3D special effects, such as semi-transparent windows, wobbly windows, desktop cubes, etc. Some people call it "eye candy." Both KDE and Gnome will support Compiz.
KDE 4.3, which is the stock window manager for MEPIS 8.5, has compositing features built-in. The effects can be turned on and off with the click of a mouse, and KDE 4.3 compositing effects are very well integrated into actual desktop environment, whereas Compiz window manager is sort of an add-on.
... at least that's the way I understand it.
IMO KDE 4.3 is a giant leap ahead in terms of implementation of compositing.