A codec is a software or hardware that compresses and decompresses audio and video data to reduce file sizes for faster transmission and storage. There are two main types of codecs: lossy, which reduce file size by discarding some information, and lossless, which compress files without losing data. Additionally, codecs can be categorized by type, including audio, video, and text codecs, and they often work within multimedia containers that facilitate the storage of these compressed streams.