This bug refers to applications not using window decorations (title bar, borders). Two examples I can confirm this behaviour for are xfce4-terminal with View->Show Window Borders unchecked, and Chromium with "Use system title bar and borders" unchecked.
When xfwm4's "Raise on Click" setting is unchecked, the expected behaviour when clicking on a window that is behind another window is that it is not raised. For windows without decorations, the actual behaviour is that they are raised.
A workaround is to toggle the "Raise on Click" setting after the window is created. This affects the behaviour of currently existing windows, but new windows created after toggling the setting are still raised.
Note that versions of Chromium older than 53 contain a bug which raises their windows regardless of the window manager's "raise on click" setting. It was when testing the fix that I discovered this behaviour in xfwm4.
iirc (long time I wrote that code) this is on purpose because when raise on click is disabled, you need decorations to raise windows, so without decorations, disabling raise on click makes little sense.
This is the same with CSD windows actually, disabling raise-on-click won't work becauset hte WM is not drawing the decorations.
I can think of two ways to raise a window with no decorations:
1) I often use alt-click to raise/move windows. Less often I use a keyboard shortcut configured in the window manager settings.
2) A CSD application might provide its own UI elements which cause it to ask the WM to raise it.
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