I was exploring the K2 Parameter settings and I was playing around the "Advanced SEF Settings" under Advanced tab. I really find the "Enable Advanced SEF for K2 URLs" option very helpful. However it says that "enabling this option will add a significant performance hit for websites with more than a few hundred k2 items in them. Use with caution". Well, this got me concerned. My site is definitely going to have thousands of articles, so does it mean this option will take a very big hit in performance? How much difference (or effect) does it make with the performance? Can someone who have tried this in big sites please do share me your quick thoughts on this...

What I am confused about is this, I am going to be adding the K2 categories as menu items anyways since it gives control of the category url. However, the url for articles still has 'item' and the 'item ID' in it. If I only want to remove these 2 from the url, I still need to enable the Advanced url settings. So I dont know now on how bad its going to hit it. I know the other option is to add each item to the menu items to get full control of it. Since I am going to be creating 1000s of articles, I thought adding each of these articles in menu items is a lot of extra work. What do users who have tens and thousands of k2 articles do if they want to remove item id from url and doesnt want to install a separate seo extension like shf404 etc..?

Adding items to the menu is not a viable solution.
You have two options.

a) Use sh404sef which does this out of the box.
b) If you have the required skills implement a simple K2 plugin which manipulates Joomla!'s router.
c) Use K2's advanced SEF with caching enabled (a must for page speed).

If you remove the ID k2 will execute one extra query to find the item's ID.

Thank you Krikor. I had a look at both sh404ref as well as AceSEF. I am usually very picky when deciding to use a SEO component since a lot of times they can cause more trouble than they fix. Creating a custom plugin will not be the option for me. Also its extra work in creating and keeping it upto date during upgrades. So I might probably use K2's Advanced SEF I am thinking. I will get the caching enabled like your advised. Can I ask, do you know or have had experience with using K2's Advanced SEF on sites that has over 10,000 articles? Is it still worth having it or would it have too much of an impact on big databases and not advisable to use it (considering I have caching enabled and have a decent 1GB VPS server)?

It really comes down to the traffic. Size matters but it's traffic that might cause downtime.
Caching solves this, but just to be sure you can also use a CDN.

On personal projects with that amount of items I have used a free Cloudflare account with success.

K2/ Joomla was caching all the content and the CDN was serving all the static content.

Thank you Krikor for your valuable input. I will first have a try with this k2's sef and keep an eye on the performance.

Thanks again for your time. Very much appreciated! :)

You 're welcome :)