From Hydrogenaudio Knowledgebase
Lossy compression is a form of compression that significantly reduce multimedia file size by throwing away information imperceptible to humans.
Human audio perception is not perfect. Lossy compression takes advantage of this characteristic. By selective discarding, much unnecessary information is thrown away. The amount of information discarded is usually adjustable, giving a compromise between smaller size with less quality and larger size with higher quality.
The downside to this is that waveform reconstructed from compressed information will never exactly match the original waveform.
 Does Lossy Encoding Preserve Surround Information?
Depending on the encoder and settings, degradation of surround imaging may happen. Use higher bitrate to prevent this from happening. Mid/Side stereo of LAME or AAC does not destroy surround information. Also MPC preserves surround information with standard settings reasonably well. The lower the bitrate, the worse you can expect the surround imaging become.
 List of common lossy formats
- Advanced Audio Coding (AAC, also improperly known as MP4 or M4A)
- Musepack (also known as MPC, formerly known as MPEGplus or MP+)
- (Ogg) Vorbis
- Speex (speech only)
- Windows Media Audio (WMA)