Compressor EffectsA compressor changes the dynamics of your playing so that sounds louder than a given limit becomes quieter. You could say it cuts the peaks (volume that is).
Compressor or limiter?For it to be a real compressor it should also boost the signal prior to cutting the peaks, without the boost it's not a compressor but a limiter.
LinksDiscussion about compressors
Supasustain - Schematics and discussion about how it works.
Q & D Compressor - Can be used as a noise gate too.
Modified Q & D
Boss CS-3 - Schematic and explanation.