7 Hour Delay Venice to Montreal
 

AC1919, Venice to Montreal, was delayed 6 hours from boarding due to a mechanical issue with the plane. This resulted in our missed connection to Toronto. When we did board, we were told we would be landing in St. John's Newfoundland to either refresh the flight crew or spend the night. On approach to SJ, we were told we would remain in the plane on the ground for a half hour while the flew crew was changed. The crew changed, but we sat in the plane for 2.5 hours due to a maintenance issue before heading on to Montreal. The flight was to land at 4:30 and landed at 12:30 am instead. We got to a hotel at 2:00 am, only to leave it at 4:00 am to connect to Toronto on a 6 am flight. We arrived at our final destination at 7:20 am, a full 12 hours later than we were supposed to.

I contacted customer relations and was offered a 25% off promotion code for our inconvenience. A Fee for Service organization says I and my daughter are each entitled to 600 euros compensation, but will take 25% of the compensation for their services to negotiate with Air Canada. First, what should be my rightful compensation, and second, am I just better off to go with the fee for service agency to fight for my rightful compensation? Why can't Air Canada just own it?

I wouldn't recommend a fee for service provider to get any refund. 25% is gouging but more importantly what can they do to compel the airline that isn't their legal requirement? You can do whatever any service provider can do for free.
My opinion is you had a crappy situation but doubt you can get any more compensation that what was offered.
Compensation in your case is twofold. Legal requirement and goodwill. Goodwill will depend on you status if any with the airline. Legal it appears you are entitled to no specific compensation.