Codec stands for COder/DECoder. It is a small piece of software that allows you to make/play movie/audio compressed in a certain format. MPEG-1, MPEG-2, MPEG-4, DivX ... are all codecs. AVI, ASF, WMV are not codecs, but file formats. AVI is also a container format (see below for more information), meaning it can be made using many different codecs.

There are numerous standard codec schemes. Some are used mainly to minimize file transfer time, and are employed on the Internet. Others are intended to maximize the data that can be stored in a given amount of disk space, or on a CD-ROM.