Compression software is used to compress files. Compression is the process of taking a file and reducing the overall file size. When a file has been compressed it will be very close to its minimal size possible. Reducing the file size any more will result in information being lost. For example if you reduced a bitmap picture from 1MB to 30KB then compressing the file again would result in little or no further compression.

When a file is compressed then it becomes unreadable until it is decompressed. So the software used to compress the file must be used again to decompress. For example WinRAR can produce archives to type RAR. This can only be decompressed by WinRAR or other combatable software. So if you RARed a word document it would no longer be readable in word till it was unRARed.

The above form of compression does not loose any of the origonal file details. It is known as lossless compression. You can also have lossy compression which will remove parts of the origonal file while trying to retain as much of the important information in order that the compressed file is close to the origoinal. MP3, JPEG and DVD's all use this form of compression. This is why MP3 quality will never be as good as CD (which does not compress the digital sound).