Jon is right, there are two different animals here.
1) Compression used to shrink the overall size of the audio. This comes in 2 flavors: lossy and lossless. Lossy compression (minidisc, MP3, RealAudio) "throws away" some information during the compression process. You cannot restore the original file from the compressed file. Lossless compression (Zip, WaveZip, Monkey's Audio) does not lose any of the file's original information. A file can be compressed and then uncompressed (decompressed?) to it's original state any number of times without losing any of the original signal information. Lossy compression will usually produce a much smalller file than lossless compression, at the expense of lower audio quality. It's all a trade-off: quality vs. size.
2) Dynamic compression. This is what Ola was describing.
If you hear folks talking about a "compressor", you're most likely dealing with #2. If they're talking about an "encoder", you're probably dealing with #1.