Function coalesce_damage 

pub fn coalesce_damage(
    rects: Vec<FineDamageRect>,
    limit: usize,
) -> Vec<FineDamageRect>

rects without the ones another contains, merged down to at most limit rectangles when there are more. Each merge joins the pair whose union adds the least area, so a caret blinking at one place stays one small rectangle however many frames repeated it. Merging only ever repaints more than the damage, which is correct; it never loses a pixel.

Every rectangle remembers its cheapest partner, so a merge costs one pass to update the others against the merged rectangle instead of a search over every pair: quadratic overall where the search was cubic. A rectangle whose partner was merged away and that finds the merged one dearer keeps its old cost as a lower bound and looks again only when that bound is the cheapest merge left.