The two settings
Optimize uses signals in each auction, such as keywords, search terms, devices and locations, to prioritize the ads expected to perform better. As data builds up, serving leans more heavily toward the likely winners, though it can stay fairly even when ads perform alike or the ad group gets little traffic. Do not optimize enters your ads into the auction more evenly for an indefinite amount of time. Rotation exists because no more than one ad from your account can show at a time.
Smart Bidding sets it for you
If a campaign uses Smart Bidding, Google automatically uses the Optimize setting. Google also says Do not optimize isn't recommended for most advertisers. Even with it, each ad's share of impressions may not be even, because Ad Rank still weighs ad quality: a stronger ad can show on page one while a weaker one shows on page two, where fewer people see it.
When we'd use Do not optimize
Rarely. It can make sense for a simple copy test on manual bidding, where you want two messages to get comparable exposure and you'll judge the result yourself. Keep in mind that a responsive search ad already tests headline and description combinations inside the ad, so the setting matters less than it did when ad groups held several fixed ads. For a test you need to trust, we'd rather run a proper A/B test with a set split and a clear readout.
Common questions
Which campaign types use ad rotation?
Google says the ad rotation setting is available in Shopping, Search and Display campaigns.
Does Smart Bidding override the ad rotation setting?
Yes. If you use Smart Bidding, Google Ads automatically uses the Optimize ad rotation setting.
Does "Do not optimize" give every ad equal impressions?
Not necessarily. Ads enter the auction more evenly, but ad quality still affects Ad Rank, so a weaker ad can show lower or less often.
Is "Do not optimize" the same as rotating ads indefinitely?
Yes. Google describes Do not optimize as ads entering the auction more evenly for an indefinite amount of time, and the Google Ads API calls it ROTATE_FOREVER.
Where do I change the ad rotation setting?
In the ad group or campaign settings under Additional settings, then Ad rotation. You can also change several at once by selecting them, clicking Edit, and choosing Change ad rotation.