Video compression is the process of using computing power to reduce the size of images or video regardless if it will be stored on a hard drive or sent over a network. Compression is a tradeoff between CPU (processor) cycles and small sizes and there are two types:  image compression and video compression.   Here are a few:

• JPEG (image) – very common form of image compression.  Found in digital cameras, cellular phones and laptops.
• M-JPEG (image) – using JPEGs as frames to make ‘motiion’.
• Wavelet (image) – more efficient than JPEG.
• JPEG-2000 (image) – standardization of wavelet compression.
• MPEG-2 (video) – very common – used for DVDs, cable TV and Internet based media.
• MPEG-4 (video) – better compression than MPEG-2; more suitable for low bandwidth applications.  Records image deltas to reduce bandwidth requirements.
• MxPEG – Mobotix’s proprietary compression format which was used to obtain higher image quality of moving objects when compared to MPEG-4.  This format was designed for low bandwidth consumption and quick reaction times.  It is important to note that the license is free to use, allowing developers to integrate MxPEG video.
• H.264 (video) – can be up to 3 times more efficient than MPEG-2 and is becoming popular. 

Better hardware can result in better ability to compress video.  Compression is important for applications where large amounts of video will be transmitted or stored.