VAE stands for Variational AutoEncoder. Images are generated in a “compressed” way, with may result in artifacts. Models may come with a integrated VAE, but can also benefit from a custom one. You can install VAE files under models/VAE by downloading the applicable file there.

Two VAE’s can be found on https://huggingface.co/stabilityai/sd-vae-ft-mse-original/tree/main, of which I like the “mse” one the best. You can select which VAE to use under the “Stable Diffusion” category of the “Settings” in Automatic1111 web UI.