Compression is the coding of data to save storage space or transmission time. Although data is already coded in digital form for computer processing, it can often be coded more efficiently (using fewer bits). There are many compression algorithms and utilities. Compressed data must be decompressed before it can be used.
The standard Unix compression utilty is called compress though GNU's superior gzip has largely replaced it. Other compression utilties include zip, PKZIP, Stuffit and WinZip.
For additional compression software and notes on file extensions see the Compression FAQ, particularly "What is this .xxx file type? Where can I find the corresponding compression program?".
Source: Free Online Dictionary of Computing.