Audio playback once seemed as simple as placing a record on a turntable and engaging the play button.  But 20th century memories can be short. 
It wasn't always that simple.  For example, the playback of a vinyl record could include several sizes in one of four speeds.  And prior to 1954 vinyl enthusiast confronted several playback equalization choices.  In addition, audio tape formats such as the open reel or cassette included options such as tape size, speed, noise reduction, playback equalization, and recording bias.

Given this history, it shouldn't be surprising that the 21st digital century has also generated yet another collection of audio options wrapped in terms such as
file and format, compressed or uncompressed, lossless or lossy, WMA, ACC, MQA.

Files & Formats

Digital audio organizes data into files and formats.  The file is the container.  The format is the storing method. 
For example, the compact disc files audio to an optical discs and uses the Sony/Phillips 16-bit 44.1KHz sampling rate format.

Digital audio can also be filed to a music server hard drive, solid state drive, or streamed from an Internet cloud server. 
This type of audio file management must choose between a compressed or uncompressed format.

An uncompressed format records the entire audio waveform. 
But this format also devours computer storage and Internet bandwidth. 
Uncompressed formats include FLAC, WAV, AIFF, and DSD formats.

Handbook Note: Codec is shorthand for encode/decode

A compressed format saves computer storage and bandwidth.  It shrinks data files by removing "unneeded" data with masking codec software.  Masking records louder lower frequency audio while removing less loud higher frequency audio data of the same phase. The missing audio data is said to go unnoticed because its loss is hidden or masked by the louder audio.  There are two versions of compressed formats, lossless and lossy.

Lossless compression reduces data and data storage by 50%.  Lossless can compete with or improve CD quality audio.  Lossless lost redundant data can be less damaging than CD optical-laser jitter-phase distortion.  Popular lossless formats include ALAC and FLAC.

Lossy
Lossy compression reduces data and data storage by 90%.  But lossy does not approach CD audio fidelity.  Lossy audio quality ranges from a cell phone to good FM radio.  MP3, ACC, WAV, OGG are popular lossy formats.

Masking Comment

Masking implies that the lost redundant audio data is insignificant.  However, that data includes essential HiFi phase information. Sound engineers have proven that the human ear is more sensitive to phase than frequency.  A friend once explained it was more important for early caveman to determine which direction (phase) a tiger was coming from than which tiger (frequency).  We are descendants of the former.

Phase distortion is a well know issue in high fidelity circles.  Phase distortion has long been identified as a key-hindrance to compact disc fidelity.  Masking can also create audible phase distortion.  Check out The Absolute Sound MQA story "Musical Origami".  Bob Stuart of Meridian introduced a digital audio format that eliminates phase distortion.

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