Colour, mono or centerline: which trace you actually want
Three modes that produce three completely different files from the same image, and picking the wrong one is why the result looked nothing like what you expected.
Colour: one layer per colour
The image is reduced to a palette and each colour becomes its own set of filled shapes. This is what you want for print, for a multi-layer vinyl job, and for anything that will be looked at rather than cut.
It is the wrong choice for a cutter, because filled shapes stacked on top of each other give you overlapping cut lines that the machine will happily cut twice.
Mono: one cut layer
Everything above a brightness threshold is background, everything below is the shape. You get one layer of closed outlines, which is exactly what a blade or a laser wants.
The threshold is the whole game. Move it and thin strokes appear or vanish. If the trace came out empty, or came out as one solid blob, the threshold is on the wrong side of your artwork rather than the artwork being wrong.
Centerline: the line down the middle
Outline tracing turns a drawn line into a long thin loop: a stroke 2mm wide becomes two parallel cuts 2mm apart. For engraving text, a signature, or a technical drawing, that is not what anyone wants.
Centerline finds the middle of each stroke and produces a single open path. One pass, down the centre, the way you would have drawn it. Every path is deliberately open, which is why the usual "this will not separate the part" warning is not raised in this mode.
Detail and smoothing do different jobs
Detail decides how closely the contour follows the pixels. High detail keeps every wobble, including the ones from JPEG compression and scanner noise. Low detail throws away small features, which is what you want on a noisy scan and disastrous on fine serifs.
Smoothing is applied after, and fits curves through the points rather than removing them. It rounds off the stair-stepping a pixel grid produces. Too much and corners turn into arcs, which on a rectangular part is immediately visible.
The failure people report as "it traced badly" is almost always one of these two at the wrong end, not the mode.
Remove background, and when it helps
On a logo exported with a white rectangle behind it, background removal gives you transparency and one less contour to delete later. On a photograph it will find an edge that is not there, because a photograph has no background in the sense the tool means. If the subject is not cleanly separated from what is behind it, do that work first in a photo editor.
Check the result before you cut
The layer and outline counts in the result panel are the fastest sanity check there is. A logo that came back as 4,000 outlines was traced at a detail setting meant for a photograph. A photograph that came back as 3 outlines was traced in mono and is now a silhouette.