There are two types of image file compression algorithms: lossless and lossy.
Lossless compression algorithms reduce file size while preserving a perfect copy of the original uncompressed image. Lossless compression generally, but not exclusively, results in larger files than lossy compression. Lossless compression should be used to avoid accumulating stages of re-compression when editing images.
Lossy compression algorithms preserve a representation of the original uncompressed image that may appear to be a perfect copy, but it is not a perfect copy. Oftentimes lossy compression is able to achieve smaller file sizes than lossless compression. Most lossy compression algorithms allow for variable compression that trades image quality for file size.
Read more about this topic: Image File Formats
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