georgeDoes this affect the overall performance in any way?
Only when these high-quality images are on your screen. It won't affect ingame performance in any way, just backpack and loadout pages.
This will pretty much destroy your performance if you set it for the backpack page. Reason for this is because when you have the high quality item type selected, every frame the game will reload the vmt for each image shown (presumably because valve didn't think there would be many of them on the screen at the same time. Because of this the overhead from the filesystem will pretty much crush your frames if you don't use it sparingly.
You can slightly improve your performance (~5% for me) when using this trick by setting filesystem_native to 0.