If your file is not edit-friendly (usually variable frame-rate, or GOP settings that are not good) Shotcut may struggle to seek and the playback in the source window may “stutter and lag”.
When you convert to edit friendly you are given the option of how much or little compression you want. If you want best quality then opt for “Best Quality”.
If you want to preview scaling goto Settings -> Preview Scaling then choose one of the resolutions that is lower than that of your video. If e.g. your video is 1080p and you choose 540p then the resolution in the preview window will be reduced by a factor of 4 which will help to keep the playback smooth.
Proxy editing means (automatically) converting all your video clips to a lower resolution and Shotcut manipulating these, then when you export it replaces the lower-res videos for the full-res ones.