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WinRE is Windows Recovery Environment. It's the environment that exists on the Recovery partition that gets created as part of default Windows installation since Windows 7 (or Vista?). If your system doesn't have a Recovery partition, the WIM file for WinRE should still be at \Windows\System32\Recovery. Reflect can pull the necessary files from either of those locations. It's built on top of WinPE with a custom UI that does not get carried over into Reflect Rescue Media. So technically both the WinRE builds and WinPE builds run on Windows PE, but I suspect the naming was implemented this way to distinguish having Reflect build from the system's WinRE environment vs. a downloaded Windows ADK.
In terms of which is preferred, there's no universal answer, but in general WinRE is the recommended choice for most users because it does offer some benefits. First, it's the only way to get WiFi support on Rescue Media if that's important to you. Second, it obviates the need to download a large Windows ADK. And third, it's always kept in sync with the version of Windows you're running, which means if Microsoft adds some new feature to a future version of WinPE/WinRE that's useful for your system, you don't have to wait for Macrium to update Reflect to officially support that newer version anymore before you can build your Rescue Media with it. On the other hand, if you're running Windows 7 (for example) and want to build your Rescue Media with a newer WinPE version in order to gain broader hardware support (USB 3.0, NVMe, UEFI, etc.) -- or for that matter if you for some reason need to build your Rescue Media with an older version of WinPE -- then you'll have to use the WinPE options, because again your WinRE version will always match your "main" Windows version, and there are times where you might specifically not want that.
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