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MP3 is a popular digital audio coding format. It uses lossy compression to decrease file size, which makes it useful for bandwidth-limited operations such as streaming and file sharing. MP3 has the file extension ".mp3", which originally stood for "MPEG-1 Audio Layer III" or "MPEG-2 Audio Layer III".

MP3 is a lossy format, meaning information is always lost from the source and through each subsequent encode of the data. This loss of data through subsequent encodes is known as "generation loss". For this reason, MP3 is not used much in the pro audio world, where high quality digital representations of sound as well as no generation loss is essential. If it is used, it is only used once as the end product for distribution.
Compressed formats are not always lossy, though. FLAC uses lossless compression, meaning you can encode a file infinitely (through infinite generations) and lose no data. But the encode/decode times tend not to be worth the small amount of storage space saved when compared to uncompressed (raw) formats like Microsoft's WAVE format.