What is Lens Compensation and which lenses are compatible with this feature?

Lens Compensation is an in-camera optical correction feature. It comes with three options: shading, chromatic aberration and distortion. When these functions are activated in the setup menu, the camera will attempt to reduce the effects based on the profiles of some Sony lenses.

• Shading: Compensates for the shaded corners of the screen.
• Chromatic Aberration: Reduces the color deviation at the corners of the screen.
• Distortion: Compensates for the distortion of the screen.

NOTE: Even though lens compensation will be applied to the JPEG file when shooting in RAW+JPEG, the RAW file remains uncompensated. If you wish having the corrections also applied to the RAW file, use the Sony Image Data Converter. Converted files can then be saved as lossless TIFF or as easy to handle JPEG file. 3rd party RAW converters might not be able to apply the corrections to the RAW file.

All E-mount lenses are compatible with Lens Compensation.
The ILCE-7 series is compatible even if an A-mount lens is attached (a mount adaptor is necessary). Some A-mount  lenses are not compatible.

For details, refer to the Lens compatibility information website.
https://support.d-imaging.sony.co.jp/www/cscs/lens_body/index.php