Compression formats are methods used to reduce the size of files, making them easier to store and share. They work by removing redundant data or using algorithms to encode information more efficiently. Common examples include ZIP, JPEG, and MP3, each designed for specific types of data like documents, images, and audio. These formats can be either lossless or lossy. Lossless formats, such as PNG and FLAC, preserve all original data, while lossy formats, like JPEG and MP3, discard some data to achieve smaller sizes. Choosing the right format depends on the balance between file size and quality needed for the task.