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diff --git a/README.txt b/README.txt
index 0736b7c..c256619 100644
--- a/README.txt
+++ b/README.txt
@@ -1,27 +1,56 @@
-nvironment variables:
-
-Color distance function: S2TC_COLORDIST_MODE (default: WAVG)
-RGB:		weighted YCbCr difference assuming linear input
-YUV:		weighted Y'Cb'Cr' difference assuming sRGB input
-SRGB:		weighted YCbCr difference assuming sRGB input
-SRGB_MIXED:	weighted "Y'(Y)Cb'Cr'" difference assuming sRGB input
-LAB:		L*a*b* difference
-AVG:		standard average of component difference (generic)
-WAVG:		weighted RGB average of component difference
-NORMALMAP: 	vector distance after normalization
-
-Color selection: S2TC_RANDOM_COLORS (default: -1)
--1:	quick selection (just darkest and brightest color of each block)
-0:	normal selection (all 16 colors of each block are candidates)
->0:	randomized selection (S2TC_RANDOM_COLORS random colors are added to the
-	>candidates for each block)
-
-Color refinement: S2TC_REFINE_COLORS (default: ALWAYS)
-NEVER:	never run color refinement
-ALWAYS:	always run color refinement (i.e. replace the colors by possibly better
-	colors by averaging the original colors for the encoded pixels)
-CHECK:	always run color refinement, but only use its result if it is actually
-	a closer match for the block
-LOOP:	always run color refinement, but only use its result if it is actually
-	a closer match for the block; after refining, reassign colors and refine
-	till no change for the better happened
+S2TC Environment Variables
+==========================
+
+Color Distance Function
+-----------------------
+The following color distance functions can be selected by setting the
+environment variable `S2TC_COLORDIST_MODE`:
+
+*   `RGB`: weighted YCbCr difference assuming linear input
+*   `YUV`: weighted Y'Cb'Cr' difference assuming sRGB input
+*   `SRGB`: weighted YCbCr difference assuming sRGB input
+*   `SRGB_MIXED`: weighted "Y'(Y)Cb'Cr'" difference assuming sRGB input
+*   `AVG`: standard average of component difference (generic)
+*   `WAVG`: weighted RGB average of component difference
+*   `W0AVG`: superfast weighted RGB average of component difference
+*   `NORMALMAP`: vector distance after normalization
+
+The default is `WAVG`, which is a good compromise between speed and quality for
+RGB and sRGB data. For optimum quality on sRGB input, try `SRGB_MIXED`.
+
+The color distance function defines how "closeness" of pixel values is judged
+when the pixel color values are evaluated, colors are selected, or during
+refinement.
+
+Color Selection
+---------------
+The environment variable `S2TC_RANDOM_COLORS` can be set the following way:
+
+*   `-1`: quick selection (darkest and brightest color are chosen, which is
+    similar to the method in the Color Cell Compression paper)
+*   `0`: all 16 input colors of a block are considered
+*   greater than `0`: additionally, that many random color values in the range
+    of the input color values are considered
+
+The default is `-1`, which is fast but poor quality, however ideally suited for
+online compression. For optimum quality, try `64`.
+
+A bad color selection can later be compensated for by color refinement.
+
+Color Refinement
+----------------
+The environment variable `S2TC_REFINE_COLORS` can be set to the following values:
+
+*   `NEVER`: never run color refinement
+*   `ALWAYS`: unconditionally perform color refinement
+*   `LOOP`: perform color refinement, evaluate its output and discard it if it
+    didn't improve quality, re-evaluate the pixel color values, and repeat
+    until no improvement could be made
+
+The default is `ALWAYS`, which is fast and decent quality, and usually doesn't
+make things worse. For optimum quality, try `LOOP`.
+
+Color refinement recalculates the color palette of a block after the pixel
+value decision by averaging the color values of those encoded as c0 or c1, and
+is a technique that helps a lot of the initial color selection was poor (e.g.
+if `S2TC_RANDOM_COLORS` was not set, or set to `-1`).