The <compatible> tag is designed to be used with a <package> dependency that contains a <recommended> version tag from package pear.example.com/Bar version 1.3.0 like so:
<package> <name>Foo</name> <channel>pear.example.com</channel> <min>1.0.0</min> <recommended>1.5.2</recommended> </package>
The above dependency can be translated into English as follows: "Use the package pear.example.com/Foo, but only versions 1.0.0 or newer. If pear.example.com/Foo is not installed, install version 1.5.2. If pear.example.com/Foo is installed and is not version 1.5.2, fail unless --force is specified, or pear.example.com/Foo is compatible with me."
That last clause "...or pear.example.com/Foo is compatible with me." is controlled by the <compatible> tag. If package Foo version 1.5.3's package.xml has a <compatible> like so:
<compatible> <name>Bar</name> <channel>pear.example.com</channel> <min>1.2.0</min> <max>1.3.0</max> <exclude>1.2.9</exclude> </compatible>
This will instruct the installer that pear.example.com/Foo version 1.5.3 is compatible with pear.example.com/Bar versions 1.2.0 to 1.3.0 inclusive, but is not compatible with 1.2.9.
It is very important to note that only existing versions that have been tested with the package should be mentioned in the <compatible> tag. Future versions of pear.example.com/Bar should simply upgrade the <recommended> tag.
<compatible> may contain three versioning tags. The required <min> and <max> are used to define the range of tested and compatible versions, and <exclude> is used to exclude any versions within the range. In the example above, 1.3.0 and 1.2.0 are the highest and lowest versions that may be excluded. There can be an unlimited number of <compatible> tags inside a package.xml.