Reindex Domain - Suggested Defragmentation

Hi,While running reindex domain utility, the analyze option generated the report given below.

Dim Name   :  prcp

DimRegistry  BitSize:  8

DimInfo      BitSize:  8

Capacity         (C):  256

MaxPhyId         (M):  249

MaxLogId         (L):  167

Threshold        (T):  25 

Action Required   :  No need to increase the BitSize. Defrag the dimension to free up unused space. 

Now, it is suggesting defragmentation, I tried defragmentation using Optimize Domain -d domain path, without any options.

But still no luck, it is not freeing up the space. 

Also, as per above, C - M < T, shouldn't the suggestion be to increase bit size??  

Could you please suggest, how to proceed with defragmentation and if bit size increase is needed?