The Collaborative International Dictionary of English v.0.48:

Compression \Com*pres"sion\, n. [L. compressio: cf. F.
   compression.]
   1. The act of compressing, or state of being compressed.
      "Compression of thought." --Johnson.
      [1913 Webster]

   2. (Computers) reduction of the space required for storage
      (of binary data) by an algorithm which converts the data
      to a smaller number of bits while preserving the
      information content. The act of compressing [3].

   Note: Compression may be lossless compression, in which all
         of the information in the original data is preserved,
         and the original data may be recovered in form
         identical to its original form; or lossy compression,
         in which some of the information in the original data
         is lost, and decompression results in a data form
         slightly different from the original. Lossy
         compression is used, for example, to compress audio or
         video recordings, and sometimes images, where the
         slight differences in the original data and the data
         recovered after lossy compression may be
         imperceptable to the human eye or ear. The JPEG
         format is produced by a lossy compression algorithm.
         [PJC]

The Collaborative International Dictionary of English v.0.48:

lossy compression \los"sy com*pres"sion\, n. (Computers)
   The compression of binary data into a form which, when it is
   re-expanded, has most, but not all, of the original
   information. It is used primarily for compression of images
   and sounds, and is designed to provide a high degree of
   compression at the cost of a slight loss of data. It is
   expemplified by the JPEG compression standard. Images
   compressed by a lossy compression algorithm are re-expanded
   into an image close, but not identical to the original image;
   the difference between the original and the reconstructed
   image may be imperceptible to normal viewing by the eye.
   [PJC]