you need to set policy on
~/projects/... and not on the repository.
What kinds of files are you compressing? Many files these days are not really compressible at all. Try a directory full of source code, such as Kopia itself.
To verify the compression do
kopia snapshot ls to find the directory entry (starts with
k<hash>) then do
kopia ls -l k<hash> - if you see any entries with
Z in them - those are compressed.