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Compressed data can be downloaded more quickly, the best maths are given in the Mozilla Perfomance HTTP Compression page. HTML compresses remarkably well, smaller quantities of data mean that pages arrive quicker and take less bandwidth.
If you have a bandwidth quota, MBytes a week or GByte a month, then serving compressed files means that you can handle more page requests.
This depends on many things.
.gif, .png or .jpg
files have their own compression. If the visitor has a browser which says it can handle compressed data but cannot managed it then they get a screenful of binary. This can happen, see the which browsers handle content-encoding?
The second, more remote possibility is that if the modem is not actually managing error correction or data is corrupted in between the modem and the computer then the visitor won't just see a single strange character in the output, the remainder of the page may be garbled.
Compressed files can take 20% to 30% of an uncompressed file on the server's disc. HTML pages compress particularly well and if your website is dealing with a lot of static pages, particularly if they are large, the reduction in storage requirements can be most welcome.
Compressed files, when sent direct to browsers which can handle them in a compressed form, mean that you also make better use of your bandwidth.
For Apache, see a page from Michael Schroepl's configuring mod_gzip FAQ. It makes sense to serve compressed files where it is safe.
For Internet Information Server (IIS), the best product is TurboIIS http accelerator a self configuring end high performance http compressor and server optimizer. test HTTP Compression to see how compression works
For any further questions, contact me.