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Settling with power is sometimes referred to as "vortex ring state." It is a phenomena that is best summarized as flying in the helicopter's own downwash. The helicopter will "settle" (descend vertically), despite application of full "power."
The rotor develops lift by displacing air downward through the rotor system. This downward flow of air is responsible for the lifting reaction force that keeps the helicopter airborne. Imagine a helicopter hovering stationary in mid-air, and the resulting downward flow below it. If this imaginary helicopter begins descending downward vertically, it will be moving in the same direction as the air it displaces in order to generate lift.
At some point, the helicopter will effectively begin flying in its own downdraft. Similiar to if it were flying in the downdraft of a thunderstorm or on the leeward (downwind) side of a mountain or cliff. To maintain the vertical decent rate will require an increase in power. At some point in the envelope of velocity, there is a unrecoverable situation where full collective and throttle are unable to arrest the descent.
The recovery from settling with power consists of flying forward out of the vertical descending column of rotor downwash. Adding collective will simply aggravate the condition and rob the helicopter of energy reserves which should be used to generate forward motion.
In a full size helicopter, the vortex ring state (or "settling with power") can be encountered at forward speeds of up to 30 knots. This unstable condition is typically graphed on charts depicting vertical velocity on the abscissa (Y-axis) and horizontal velocity on the ordinate (X-axis). Essentially, settling with power is described by a region of velocities occuring through a range of descent angles between 90 and 70 degrees. High performance model helicopters typically operate with power reserves sufficient to arrest ANY vertical descent, unless operating with a heavy load on-board such as camera equipment.
A curious manifest of this phenomena occurs with the V-22 Osprey Tilt Rotor aircraft. This aircraft is a VTOL (vertical take-off and landing) aircraft that directs its propeller-rotors (proprotors) horizontally to achieve a steady state condtion of horizontal flight more similar to an airplane than a helicopter. In vertical descents with heavy loads on-board (human soldiers , equipment, or weapons), the tendency for one rotor (the V-22 has one on each "wing") to enter the vortex ring state before the other leads to disaster.
This phenomena might be described as similar to the state of "auto-rotation" that a fixed wing aircraft enters upon going into a spin. One wing stalls before the other, falls vertically downward increasing its relative angle of attack and aggravating the situation. Just the same, on the V-22 tiltrotor aircraft, when one rotor enters the vortex ring state whereby the rotor is engulfed in downwash, it tends to aggravate the situation. The rotor experiencing the condition tends to worsen faster than the other side.
Please note that auto-rotation of an aircraft in a spin condition is very different indeed than a helicopter which is autorotating. Auto-rotation with respect to a spin is more descriptive of the yaw and roll forces which tend to keep an aircraft spinning and in a helicopter, the term is more descriptive of energy management of the rotor system with regard to vertical descent rates and collective pitch adjustments.