For documentation and examples regarding the array output_options, see http://xmlrpc-epi.sourceforge.net/main.php?t=php_api#output_options
In short, output_options lets you send compact xmlrpc (without all the "pretty whitespace" xmlrpc_encode adds normally), apply an own escaping table prior to sending, set the encoding, and a couple of other things (the page even says something about soap 1.1 ... I don't know details).