How are conflict files created? :
A conflict may be caused by two or more users editing the same files at the same time or while on the road before the files are synced. We do not merge changes to files like version control systems like git do; we don't modify user files, ever. So you will get two files, the one that was synced to the server first and the one you had locally modified in the same time. You can compare the file changes by hand and delete the local file once you're sure you did not lose data.
These conflict files are not synced up to the DattoDrive server to prevent data loss. In the event multiple clients are syncing to the same server and one user accidentally overwrites a file or makes any edits that conflict with another user editing that file, this new conflict file will then not only be synced up to the server but will also be propagated to all other users which can cause confusion. Instead, we prevent the file from being uploaded and allow the user to determine which version they'd like to retain.
This will likely be improved upon moving forward as quite a bit of ownCloud users (the product DattoDrive is built off of) have already voiced their concerned with how this is handled. The solution here will more than likely be to implement LibreOffice Online which will introduce live collaborative editing and prevent conflict files from being created in the first place.
Does DattoDrive use delta-sync when synchronizing files?
The DattoDrive desktop client is built off of the ownCloud desktop client which uses parallell chunk syncing. Using delta-sync and allowing only file changes to be synced would require much deeper changes in the client itself. This is something that we are actively trying to improve upon moving forward.