What is compression?
During compression, data that is duplicated or which has no value is eliminated or saved in a shorter form, greatly reducing a file's size. When the image is then edited or displayed, the compression process is reversed. There are two forms of compression, lossless and lossy, and digital photography uses both forms.

Compression refers to shrinking of images' sizes so that they take up less space. Some information is lost when the process of compression occurs, but with popular formats like JPEG, set an average compression level, it is hard for a human to notice any difference.

Instead of using compression, some cameras allow you to change resolution as a way of controlling the size of image files. Because you can squeeze more 640 x 480 images into a storage device than you can squeeze 1024 x 768 images, there may be times when you'll want to switch to a lower resolution and sacrifice quality for quantity.

Lossless compression
Lossless compression uncompresses an image so its quality matches the original source. Although lossless compression sounds ideal, it doesn't provide much compression. A leading lossless compression scheme is LZW (Lempel-Ziv-Welch). This is used in GIF and TIFF files and achieves compression ratios of 50 to 90%.

Lossy compression
Although it's possible to compress images without loosing some quality, it's not practical in many cases. Therefore, all popular digital cameras use a lossy compression (rhymes with bossy) that degrades images to some degree and the more they're compressed, the more degraded they become. In many situations, such as posting images on the Web, the image degradation isn't obvious. However, enlarged prints reveal it quite clearly.

Although lossy compression does not uncompress images to the same quality as the original source image, the image remains visually lossless and appears normal if not enlarged too much. The trick is to remove data that isn't obvious to the viewer. For example, if large areas of the sky are the same shade of blue, only the value for one blue pixel needs to be saved along with the locations of the other identical pixels in the image. The leading lossy compression scheme is JPEG (Joint Photographic Experts Group) used in JFIF files (JPEG File Interchange Format). This scheme allows you to select the degree of compression. Compression Ratios between 10:1 and 40:1 are common.