Compression is an organized reduction in the volume of data, where "organized" implies that you can "decompress" it to get something similar to or exactly the same as the original. One use’s compressed data all of the time. You use "zip" files all of the time. Your system backups are compressed. You might even be unlucky enough to have used a compressed file system. But it’s more than just that. Virtually every graphic file is compressed in one form or another. Just about all multimedia is compressed. Without compression there is too much information to transport over non-dedicated networks.

There are 2 general "kinds" of compression: "lossy" and "lossless". "Lossy" compression allows for decompression that yields something that is not exactly what was originally compressed. JPEG (.jpg) images are the most common example. With graphics, if a few dots here and there are missing or wrong, your eyes can't tell the difference generally. So it doesn't matter that much. With audio and video, a minced bit here and there won't be noticed, unless you are planning on saving it many times (as if you are mixing audio for a CD). For data, lossless compression is required. You can't have a bit in an IP packet lost, or the checksum will fail or the file probably won't work.

You might ask why anyone would ever use "lossy" compression as opposed to "lossless", since it seems a lot better to get exactly what was originally compressed rather than something slightly different. The answer is that lossless compression has limits as to what compression ratios can be obtained and are much less than lossy compression. You can cheat more with lossy compression, so you can get much better compression ratios. But you don't get exactly what you started with, so it’s no good for the purposes discussed here.