A system used to reduce the amount of data needed to represent some information, such as an audio signal.
Lossless audio data reduction systems, (eg. FLAC and ALAC) can fully and precisely reconstruct the original audio data with bit-accuracy, but the amount of data reduction is rarely much more than 2:1.
Lossy data audio reduction systems (eg. MPEG, AAC, AC3 and others) permanently discard audio information that is deemed to have been 'masked' by more prominent sounds. The original data can never be retrieved, but the reduction in total data can be considerable (12:1 is common).