Many people confuse the terms archiving and compressing. While there is some connection between the two they are actually completely two different things. Here is some more information about those terms.
Archiving is a term that usually describes the process in which files are packed into one or more files for backup or for storage for a later use. The word archiving is actually old and was also used back in the days where computers where not available. In the old days archiving meant taking physical files which were a collection of papers and documents putting them in boxes and then storing those boxes in a special place for later retrieval.
A good example of what archiving was used for back then is the archiving of legal documents such as contracts and tax documents. For example after completing the tax reports for a certain year the company has no use for the detailed tax files but the law requires it to save them for a certain period of time usually for 7 years. Most companies would then archive the tax files by simply taking all the relevant tax documents putting them in a box market accordingly and then storing the box in an archive facility usually owned and managed by a third party service company.
In the digital era archiving means the storage of electronic files for later retrieval. It also means that the archived documents are not expected to be used on a regular basis and for that reason they can be stored in a format that is less efficient for retrieval and processing but more efficient in managing a large archive. One such format is known as packing. Packing means that a large group of files such as the year tax documents from the previous example are packed into a single electronic file. The file is named accordingly and usually is very big.
Compressing is the process in which files are converted into a more efficient representation thus requiring less bytes for storage. Compressing is usually done in order to save space when needing to transfer files over a bandwidth limited network when sending files over email or when storing files for backup or future use.
Since archiving involves the process of packing a large number of electronic files into one packed file it also usually includes some sort of compression. Because packed files are very big and are basically stored for future use it makes sense to compress them. By compressing the files in an archive the archive packed file can be smaller and thus easier to manage and store. A smaller files requires less storage space allowing for cost savings.
Archiving does not have to include compression and compression can be done without archiving. When compressing an archive there are two main options for applying the compression mechanism. One is to compress each file just before it is packed into the archive. The other is to first pack all the files and then compress the single pack archive file. There are advantages and disadvantages to each method. In most cases the former is used.
Danette Mckay explains about this subject in more depth at 7zip