By the term itself, compressed audio formats result in your audio file to become smaller files that way you can free up space on your hard disk. Examples of compressed audio formats are MP3, AAC and WMA format. Compressed audio format comes in 2 groups: lossless and lossy compressed audio format.
Lossless compressed audio formats are audio formats that reduce file size without any degradation and loss in data between the compressed and the original file source. The downside of this format is that the equivalent files can become 2 to 5x larger. Example of this format is FLAC. If you want to listen to music with a good audio representation, use this kind of format however you’ll need to have bigger storage space.
On the other hand, the Lossy compressed format is the opposite of lossless. Lossy compression is a form of compression that loses data while the file is compressed in order to free up space however this can result to reduce in quality. One example of this one is the MP3. To put things simply, it is like compromising quality over file space. However, the difference between the original and the compressed isn’t much noticeable.