The .ZIP extension signifies the file is a ZIP archive. This is a way that people can transmit a game, screensaver, application, electronic book, or whatever as one larger file instead of multiple smaller files.
ZIP files must be created with a ZIP file creation tool. These tools take a group of files and mash them ("zip" them) together into one "archive" file, sometimes reducing the amount of space the ZIP file takes on the hard drive ("compressing"). After the ZIP file is transferred, the recipient takes the ZIP file and "unzips" it, causing the original files to appear on their hard drive.
Another advantage to ZIP files is that, in certain cases, they can be password protected. This way (theoretically) only the recipient, knowing the password, can unzip the file. Different zip/unzip software packages use different compression mechanisms that may be easier/harder to break.
Each file in a zip file is stored either as compressed data or as raw uncompressed data, and can be encrypted or not.
Maximum Archive Size: 2^63 bytes
Maximum Archive Item Size: 2^63 bytes
Maximum Archive Size: 2^31 bytes = 2,147,483,647 bytes
Maximum Archive Item Size: 2^31 bytes = 2,147,483,647 bytes