What is the technical difference between transferring from an old phone and an iCloud restore when setting up a new iPhone?

In the past, I don’t think it mattered but in iOS 14 and watchOS 7 I am finding the iCloud backup to be the best option due to a bug or migration failure that I and several others here experienced.

Apple says it’s fine to do an encrypted backup, and that will work, but the unpairing of the watch and validating the backup to iCloud was what helped me restore all my data.

It’s not entirely clear if Apple does some cleaning once the data is in iCloud or if the mechanics of the restore step and the repairing step re-runs a data migration step that fills in the gaps. Presumably, that would also run if you transferred device to device but for some reason Apple only mentions computer and iCloud setup in the support articles and when I talked with support and engineering about my issue before these articles were published.

So far, iCloud has bailed me out three times ( shelf and two friends) and we did make a computer backup, but didn’t try them first. I set up two fast Macs with content caching that saves/serves iCloud data so iCloud restored fly for me and happen faster than a new backup to the same computers over USB. I could see the opposite direction wing much faster for other setups, so my solution might not be optimal for all, but it works well for me.

I would not rely on direct migration to fix this and would do what Apple says, on the original device if possible and work with Apple support if you fail to fix it after one go.