Way back in the day when dinosaurs roamed the earth and all of us were using dial up connections, it was important to make download times as short as possible.  With download speeds reaching a blistering 2-5kps, compressing files could knock hours off of large downloads.  In addition to download speeds, users had to worry about limited hard drive space.  Compression helped preserve space by shrinking less commonly used files.
Two of the most commonly used compression formats used by PC users are the .zip and .rar formats.  Zipping and Unzipping files is a pretty familiar process for any experienced user of the net.  On the Server side the file will be compressed or zipped to reduce the file size for download.  After the user downloads the file he/she can use a program like winzip to decompress the file, making it accessible.  Rar files are much the same, except they may be broken up into chunks to allow files to be downloaded over different sessions.
My personal software preference when it comes to compression is Winrar, it handles a wide variety of compression formats and is absolutely free.  Once you’ve installed the software, simply right click and select “extract to” and you are ready to rock and roll.