A handicap, in the Super Smash Bros. series, is a feature that helps to provide balance in matches between human players of different skill levels. Handicap options for a match can be set to On, Off, or Auto - On allows each player to set their own handicap, Off disables the feature, and Auto dynamically adjusts players' handicaps based on who wins each match.
When the option is set to On, each player's handicap can be set to a value between 1 and 9, with 5 being normal. A character with a handicap of 1 will have drastically weakened attacks in terms of knockback, and suffer much more knockback from opponents' attacks. At the other end of the spectrum, a character with a handicap of 9 will do substantially more knockback than usual, and take very little knockback from opponents. It is unclear what the technical meaning of the number is.
In the case of computer players in Super Smash Bros., since their difficulty level meter appears over their handicap meter, their handicap will be the same as their CPU level (which is also numbers from 1 to 9). In Melee, they are instead properly given two independent meters for both CPU level and handicap.
When the option is set to Auto, each player's handicap is initially set to the same value (5) and cannot be manually adjusted. Instead, the values are automatically adjusted based on the results of each match played. When a player wins a match, his/her handicap is lowered by 1, thereby making him/her easier to knock off the stage in the next match. Conversely, the handicap of the player who loses the match will be raised by 1. In matches with more than two players, only the handicaps of the first and last place players will be adjusted.
Melee data and handicap 8 bug
These are the knockback ratios reported by Melee's debug menu for each handicap level:
The ratios all follow an exponential function, and the offensive and defensive ratios are inverses of each other - with the exception of the handicap 8 defensive ratio, which is completely out of line with both patterns (if it followed the pattern, it would be 1.08). As a result, a handicap 8 character has significantly more knockback resistance than a handicap 9. The cause of this discrepancy is unknown.
In Brawl, unlike its predecessors, the handicap feature does not affect knockback. Instead, handicaps now solely determine the initial damage percentage with which each character begins matches (and respawns after a KO). Rather than using a scale of 1 to 9, each player's desired percentage can be chosen from a menu, in 10% increments. Players may, as always, begin the match with 0%, or raise the percentage up to 300%, which is also the starting percentage for Sudden Death and Super Sudden Death.
When the Handicap is set to Auto, all players will start with 0%. Every time a player wins, they gain 20% handicap. Every other player will lose 10% handicap, assuming that they have 10% or more already.
Smash 4's handicap works identically to Brawl's, although it is not always in increments of 10%: it now skips from 60% to 80%, then 100%, 125%, 150%, 200% and 300%. Due to the new rage effect working depending on damage, players can also use handicaps to grant themselves the effect and deal more knockback with their own attacks.