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As far as I understand it (and with some testing of my own), the "bounciness" purely affects the movement of the object itself. And the "squashiness" purely affects the object's shape itself when it lands on something with enough force.
For example, attaching a squashy thing to a piston and pushing it against a wall has an affect, because it's hitting an unmovable object. But if you attach a piston to the other side as well, to squash it through direct manipulation, there is no squash at all. The pistons just stop moving.
So it seems these have no real physical qualities to them, only some simple "trickery" to let things look a bit more animated/reactive, without having much of a hit to performance at runtime.