A video codec is software or hardware that compresses and decompresses digital video. In the context of video compression, codec is a portmanteau of encoder and decoder, while a device that only compresses is typically called an encoder, and one that only decompresses is a decoder.
The compressed data format usually conforms to a standard video coding format. The compression is typically lossy, meaning that the compressed video lacks some information present in the original video. A consequence of this is that decompressed video has lower quality than the original, uncompressed video because there is insufficient information to accurately reconstruct the original video.