WinRAR is a tool used to compress files into smaller sizes in various formats like ZIP, RAR, CAB and more. It allows users to compress multiple files into one archive file. The process involves selecting files to compress, giving the archive a name, choosing a file format, and clicking OK to compress. WinRAR can also extract files from compressed archives with ZIP or RAR formats through similar steps of selecting the file, choosing extract, and specifying a destination.