MP3 is a compressed file format (like JPEG or Zip). Techniques of
            compression vary. MP3 uses two compression techniques (essentially
            mathematical formulas or schemes) to effectively remove redundant
          or less important data to make the file smaller. 
          Redundant data may not be actually removed, it could simply be transformed
            (this is called lossless compression, see Coding   for
            more information). For example, if a file has the following data:
            5 5 5 5 5 5 5 5, this could
      be represented as 8 5. As long as you know the first number tells you how
      many of the second number - this is the compression scheme - you've saved
      a lot of space.      
          However, the most important part of how MP3 works has to do with the
        human perception of sound. The MP3 process uses our knowledge of human
        hearing to cut out part of the original signal that we may not actually
        perceive (or at least may not be as important as other parts of the sound).
        Combined with a lot of number crunching and processing MP3 is able to
        achieve excellent compression ratios. 
      The processes involves a number of steps, for the
          complete process goto the Tutorials section,
          here is a brief overview.