LZW

The lzw file extension is used for archives compressed with the LZW compression method.

The compression format LZW is Lempel-Ziv-Welch or LZW compression.

Basically LZW creates tables of strings while compressing/decompressing data, and then later outputs the ID of the string rather than the string itself saving space. Decompression reads this and it to build a table of strings as it reads, saving the compression from needing to write large string tables at the beginning of the file, thus making it very effective.