I *think* i know how it works... though this is just a guess since I don't have it...
I'm guessing you install software on your computer for it right?
In that case your software is the client software and you have the server software on the other end.
The other end is a high speed connection to the internet but you're on a slow speed connection to it... so the only way to increase data transfer is by compressing the data before it's sent to you..
so my guess is it works like this
((Internet)) ----{high speed}---> (your ISP Server) --[Server Compresses data] ---{Slow Speed}--> (your computer receives compressed data and uncompresses it)
likewise when sending data to the internet
(your computer compresses data) ---{slow speed}-->(ISP Server receives data) --[ISP Uncompresses data]-->--{high speed}-->((Internet))
Since most of your browsing is done on web pages, a high rate of compression can be achieved (since it's only ASCII/Text characters you can compress the hell outta it)
So if you request a web page that is say 100 kilobytes large, so a normal 53kbps (highest allowed by FCC over dialup.. ) would take about 2 seconds to receive that 100 kilobytes
However if the server on your ISP can compress that 100 kilobytes to say 50 kilobytes, then it only takes your computer 1 second to receive the data.
Example:
You request 100 kilobytes, ISP receives 100kilobytes at high speed, ISP Compresses 100kilobytes to 50kilobytes
ISP Sends to your computer compressed via low speed connection
Your PC uncompresses 50kilobytes back to 100kilobytes and then passes this data to the awaiting application (web page)
Since computers now adays are overkill anyways for just web browsing they rely on your computer to do some processing... so there's extra overhead on your PC as it has to compress in incoming data (and probably does the same for outgoing, then the ISP Server uncompresses the data and sends it on to the internet)
Also, if you try to download a Zipped file (already compressed) that is 1 megabyte, it would prolly take 2 or more times longer to download than a non-compressed Text file that is 1MB large (because your ISP compresses it before sending it to you)
But this is just a guess...