Compression definately effects torque production. Everywhere. Hence, it effects horsepower as well.
To increase the compression you can do several things. Buy domed pistons, shave/mill the head to bring the combustion chamber closer to the piston, or purchase new heads that have smaller combustion chambers ex. GT-40p's.
The actual octane required to run on a higher compression engine is related to more than just compression alone. Timing, combustion efficiency, spark quality, and several other combustion qualities go into it. That along with the kind of material the head is built out of.
On an iron headed car like the stock 5.0HO setup, you could probably get by close to 9.5:1 on 87oct. Again, it all depends on other factors. Anything above 9.5:1 will certainly require higher octane fuel to keep timing at 10* or higher. Going anything beyond say 10.5:1 or so on iron heads is pretty risky IMHO. The older cars did it, but they also required things like leaded gas with much better octane qualities than what we run today. Plus the heat generated by combustion of that type is hard to dissapate with iron heads.
There are a lot of guys on the works that can help you with the performance experiance aspect more than I can, I'm only offering the technical theory and general idea behind how it works.
You'll find a lot of what gets into that area can be disputed one way or another based on opinions.
