Data compression is essential for optimizing storage space and enhancing data transmission, with two main categories: lossless and lossy methods. Lossless methods ensure no data loss and include techniques like run-length encoding, Huffman coding, and Lempel Ziv encoding, while lossy methods, used for images and audio, provide higher compression rates by sacrificing some data quality. Key techniques in lossy compression include JPEG for images and MPEG for video, utilizing predictive and perceptual encoding to reduce file sizes efficiently.