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Definition
Lossy compression reduces file size by permanently discarding some data that is considered less important to human perception. JPEG, MP3, and H.264 all use lossy compression. The result is significantly smaller files, but the original data cannot be perfectly reconstructed.
Lossy compression algorithms analyze data and remove information that is least likely to be noticed by humans. In images, this means discarding subtle color variations and high-frequency details. In audio, it means removing sounds outside normal human hearing range or masked by louder sounds. The algorithms exploit known limitations of human perception to achieve dramatic size reductions.
JPEG images use DCT-based lossy compression and can reduce photo file sizes by 90% or more with acceptable quality. The compression level is adjustable — higher compression means smaller files but more visible artifacts (blurring, banding, blockiness). MP3 audio uses similar psychoacoustic principles to compress music files to about 10% of their original size.
The key limitation of lossy compression is that it is irreversible. Once data is discarded, it cannot be recovered. Each time a lossy file is re-encoded (re-saved), additional quality is lost — this is called generation loss. For editing workflows, it is best to work with lossless formats and only apply lossy compression as the final export step.