Hi Sridhar
Apologies for the late reply as SCN connection has been a bit patchy lately. 
If you perform mapping-based message split (multi-mapping) in PI, it would split each record into separate child messages to be sent to the proxy.
All the child messages will be processed independent of one another in the proxy. Only those that fail will trigger FEH and be registered into PPO for further action. Each failure will be a different message in PPO.
This allows you to perform error handling easily on just the failed records.
If you don't perform message splitting in PI, there will be just one message in the proxy, and if you want to reprocess that message, there will need to be additional ABAP logic required in the proxy to figure out which records failed and which record succeeded in order to just retry those failed one.
Regards
Eng Swee