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I recently had my 1929 Packard off the road for some repairs for a few weeks. During that time I had to turn the engine over by hand so I loosened all of the spark plugs to make it easier to crank.
With work complete I took it on a test drive on our nearby "test hill" then on a 100 km club run. It ran very well, except for what sounded like the start of a failing exhaust manifold gasket.
The engine was recently fully overhauled so the manifold leak was puzzling till I recalled a few days later that I had not tightened the spark plugs.
They were all very loose, typically a couple of turns to tighten.
So I tightened them then took it back to the "test hill" expecting a noticeable improvement but it topped the hill maybe 1/2 mph faster at best. Being realistic it felt no different except the exhaust leak had gone.

So how critical is is it that valves are sealing and rings holding compression?

It reminds me of a comment recently from a friend who has been around cars all of his long life, he said that an engine reaches its peak performance when its about 75% worn out!

Perhaps a tightening and sealing effect of a warm cylinder head (expansion) and "lifted" spark plugs?
All the power (and fuel / air mixture) which leaves the engine through the spark plug holes is absent to turn the crankshaft.

You could probably lose 10% of your compression without a noticeable reduction in performance. I know of cars that were supposed to have 120PSI, that ran satisfactorily with half that. They were rather sluggish and down on mileage but started and ran OK. The difference was not evident until the engine was rebuilt and power restored, then the difference was obvious.

This is especially true of old flathead engines. They can be in an advanced stage of wear without making any fuss about it.

With spark plugs that are just loose the engine was probably not loosing much compression. SOME but not much to notice. Just the sound was noticed.

8 cylinders are very forgiving of lost efficiency because they are usualy bigger and more powerful than what average John Q Public has ever needed anyway. Try it with a 6 cylinder or 4 cylinder. e.g. loose one cylinder of a 4 cylinder engine and loose 25% power.

I am surprised that just loosening the spark plugs a couple of turns allowed for enuf compression release to allow easy turning of the engine by hand. Based on my experience the spark plugs have to be removed completely before any relief is allowed for any ez turning of the engine by hand.

Just out of curiosity how fast was the car going once it topped the test hill and how fast of a 'run for the hill' did u get before hitting the hill???

"It reminds me of a comment recently from a friend who has been around cars all of his long life, he said that an engine reaches its peak performance when its about 75% worn out!"

My dad used to build motors and people would always say "it was running so great and then just boom!"

and always put it "they run the best, right before they go."

To respond directly to the original question, if you want original-type performance from your car, then YES, compression is important. Uneven compression (variations of more than 10%, approx) gives rise to rough performance and some loss of power though many would still consider performance OK, as Rusty has said. Uniformly low compression, far below specs, gives very hard starting, poor power and poor efficiency (gas mileage). If you drive a car over a long period during which compression is gradually decreasing, probably the differences will not be particularly noticeable until one or more cylinders falls quite low, perhaps 50 psi or so.

But engines with compression ratios as low as 4:1 were the rule in very early cars; these gave compression values of about 55 psi at sea level. But these engines generally produced horsepowers in the range of 30-50 hp.

PS - a short time ago there was a question about variation of compression pressures versus altitude above sea level. I just ran across this chart from Chilton's 11th Edition ( 1936) which those of you living at higher altitudes might find useful.

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I'm with the community as long as we talk about the mentioned 10% accompanied by terms like "noticeable". If the test drive requires 90% of engine power nothing will happen.

In answer to Packard V8 I hit the bottom of the test hill at 45 mph and the speed drops to 40mph at the top.
As Owen-Dyneto said, uniformity of compression is more important as it causes rough running.

If you're asking if loosing 5 mph from 45 while climbing a hill is normal, it's pretty much an unanswerable question with the information we have. Depends on the weight of the car and passengers, tire size and inflation, the rear axle ratio, the state of tune of the engine, and of course the grade of the hill.

These old cars tended to have very high rear axle ratios so generally their hill-climbing ability is quite good; but they are heavy cars and to encounter a hill where you'd slow down a bit or even have to downshift is certainly in the realm of possibility. My 34 Eight has 120 hp, weighs about 4640 lbs dry weight, and climbs most hills without loosing speed in high gear. Yet I do on occasion encounter a hill where it will loose speed. Beyond that, pretty much impossible to even speculate without driving the same hill in another identical car.

If I'm understanding your question.