As far as I know this term is used in three ways:
1. Compression (Lossy): parts of wave file that you probably won't miss are discarded to make a sound file smaller. Used for producing mp3s, wma, etc.
2. Compression (Lossless): like a zip file, the size of a wave file is reduced by storing redundant bits more efficiently, conceptually similar to 11111111 being stored as 8x1. Results in a smaller file but with equivalent information to the original wave. e.g. flac, alac.
3. Compression (Recording): the quieter parts of a wave file are boosted in volume to make the recording sound better on portable and low-end equipment. This has the undesirable effect of reducing the dynamic range of the recording, levelling off the higher peaks. This makes it sound worse on better playback equipment. Subjectively, this translates to a nasty plastic sound. Was used intentionally in some rock music, but now used almost everywhere. This is probably the usage you were referring to.