Lossless codecs achieve 40–60% file size reduction by exploiting redundancy in the audio data — not by removing audio information. FLAC (Free Lossless Audio Codec) and ALAC (Apple Lossless) are the standards. When decompressed, a lossless file is mathematically identical to the original — bit-for-bit perfect.
Lossy codecs (MP3, AAC, OGG) reduce file size by 80–90% by discarding audio data deemed inaudible by psychoacoustic models. At high bitrates (256+ kbps AAC), the difference from lossless is inaudible to most listeners in blind tests. For production, always work in lossless formats (WAV, FLAC, AIFF).