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It depends on the model.

Usually, it means go into low power mode, but wake automatically if a fax arrives. This keeps the temperature of certain parts of the machine lower (the printing can use a lot of heat, even when on standby) to keep power usage down.

The drawback to this is that when a fax arrives, it takes longer to print out compared with when the machine is in non-sleep mode.

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Q: What does sleep on the fax machine mean?
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