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Daring is, for example, quite OK early game, but by Act 2 (if not sooner) it will feel rather easy.
Hard is not that much harder than Daring, except for space combat, which will annoy you no end until you get lvl up and some better gear on your ship. But after a while, sometime in Act 2, it'll feel rather easy.
Unfair is quite a bit harder than Hard I would say, but IMO all it does is force your to min-max even more and eventually your're back at the same place: combat gets too easy. Although if you mess up you might occasionally have to load a save and retry. I also find it tedious to be failing quite a few more skill tests than you normally would, unless u use talents to improve ur skills.
TL:DR no matter what you tweak your settings to, combat is going to feel progressively easier.
It makes for long, drawn out fights, with their timing events activating. But without the chance to be 1-shot by a lucky crit, so you have time for reaction and healing in combat. Once it starts getting easy for you - you can start raising the damage modifier. Although if your builds are good, around the middle of act 2 almost nothing is a challenge no matter what your difficulty sliders are.
It should be possible to play on unfair right from the start. Once you grasp the basics, what will kill you is not knowing the encounter mechanics, not the difficulty. Once you learn them, a squad wipe will be rare, usually to a string of bad luck, and even then its usually just a few downed allies, not a wipe. The game is pretty forgiving, save for a few curve balls (nimble prisoner, aurora).
I've also dragged Yrliet around with Toughness 5 quite a bit due to Trauma and it's FINE :D
* Caveat: You have to suffer through some load screens...