I don't know how Plex does it, but it burns subtitles in near real time and I don't notice any quality hit
See https://support.plex.tv/articles/200250377-transcoding-media...
What's also impressive is it can stream your media at a lower quality, say 4k to 720p to your phone, also in near real time, on a very old laptop that I repurposed into a NAS.