Code shrinking and obfuscation are crucial strategies for optimizing Android apps by reducing their size and protecting them from reverse engineering. The shift from Proguard to the R8 compiler has provided enhanced functionalities, including better support for Kotlin and more efficient code inlining. R8 follows multiple stages to shrink and optimize code, such as desugaring, resource shrinking, and obfuscation, and finally converts bytecode into dexcode. Configuring code shrinking involves setting flags in the build.gradle file, and users can define specific rules using Proguard-style schemas to retain necessary code and resources. Debugging in R8 can be managed with tools like retrace and printusage, while aggressive shrinking can be enabled for more rigorous optimizations. Overall, understanding and utilizing R8 can significantly enhance app performance by reducing APK size and improving security.