Compression is the process of taking a full bandwidth signal and reducing the size so it can fit in a smaller space.
There are two types of compression, loss less and lossy.
Loss less compression uses special algorithms to efficiently pack more information into the same amount of space. As stated there is no loss of the original data. This does require an additional encoding and decoding stage in the process which has only been applied to consumer audio formats and is invisible. DVD-Audio uses MLP, Meridian Lossless Packing, to make HD audio PCM bit streams fit onto a DVD. Computers offer loss less compression to increase your drive space and in that application you will note it has slowed down due to the additional encoding and decoding stage. Computer ZIP files are another example of this type of compression.
Lossy compression is used only in video and music because it throws data away which your PC will not tolerate.
First applied in the early 90's for music applications by Philips for DCC and Sony for mini-disc, engineers working with audiophiles developed algorithms that would throw out parts of the sound based on the theory that you would not be able to hear those passages anyway due to the masking effect. Masking simply states that if signal X is let