Digitizing a video sequence results in extremely high data rates. For example, a television image with a resolution of 720 x 576 pixels and a color depth of 16 bits produces a data stream of 1.35 MB per individual frame. As 25 frames per second are required to avoid jumpy video scenes, a gigantic data volume of 33.75 MB/s is produced! Only a few selected high-end SCSI hard drives in a RAID-0 configuration would be in a position to save this data stream. A data storage medium such as a CD-R would only have space for about 16 seconds of video. For this reason, it is absolutely inevitable that video signals are compressed so they can remove or reorganize data in order to reduce the size of digital files. One distinguishes between loss-free compression methods and lossy compression.

"Lossless" compression retains the original data so that the individual image sequences remain the same after compression (like ZIP is for files). Most lossless compression techniques use run length encoding that removes images areas that use the same color. However, the compression rate is not better than 3:1, depending on the complexity of individual images. In practice, lossless methods play a low-key role due to their low compression rates.

On the other hand, "lossy" compression methods attempt to remove image information that is unlikely to be noticed by the viewer. These methods do not retain the original data and some image information is lost. The volume of data lost depends on the degree of compression. In practice, time compression is gaining in importance. With this method, the resulting data volume for each individual image (within a video clip) is optimized. The following section covers the most important method, MPEG compression, using an example.