Compression is a process that reduces the number of bytes required to define a document in order to save disk space or transmission time. Compression is achieved by replacing commonly occurring sequences of pixels with shorter codes. Some compression methods--like JPEG, typically throw away some data seeking only to preserve the appearance of the image. Others—like CCITT Group IV, preserve all of the original information.
We call image algorithms that preserve all of the information "lossless" compression. Those that trade information for size are called "lossy". JPEG is an algorithm that allows you to adjust the compression ratio depending on the amount of information you are willing to "lose".