Lossy compression is a data reduction technique that decreases file size by permanently eliminating certain information, which may result in a slight loss of quality.

In digital imaging, formats like JPEG employ lossy compression, making them ideal for photographs where minor quality loss is often imperceptible. This method achieves significant file size reduction, enhancing web performance by enabling faster page load times. However, it's crucial to balance compression levels to maintain acceptable image quality while optimizing storage and bandwidth usage.