Here goes. Please feel free to make corrections if I've messed anything up.
The short explnation....
A compressor/limiter makes soft sounds louder and loud sounds softer, the overall effect of which is to make the processed sound (music in this case) sound louder and more consistent.
The Detailed Explanation.......
Compressors are used most often in recording to smooth out peaks and troughs in vocals, as well as in live situations, and of course nightclubs. Television commercials are notorious for using compression to increase overall volume for the ad soundtracks.
Most compresssors can be set into a limiting mode so that it doesn't cause amplifers to clip for example, saving repair bills on blown speakers.
The downside to compression? If used too heavy-handedly, you get rid of a lot of dynamics - particularly for acoustic instruments where volume plays a huge part in musical expressiveness.
Also, compression can cause listener fatigue because of this lack of dynamics.
Who makes compressor/limiters?
There are lots on the market, but definitely check out the dbx range (they invented compressors, and the VCA circuit which made compression possible). I just got
a 266XL and it is sweeeet!