I'll try to explain compression and sound a bit less techie than trndkillah's post...
Compression basically evens out the volume of what you play. You set a number and if you go above that volume it decreases your output, and if you go lower than that volume, it increases your output. This means, that if it is in a chain of effects, it should be either first or last (I prefer first). Using compression takes away from dynamics in your playing (sometimes you want to go from playing a soft passage to a huge, wailing bend), but if you don't use too much compression, it allows you to still play soft or loud, but you won't play too soft or too loud (it keeps you from playing those 22nd fret bends on the high e so loud that the audience cringes). A good guesswork for the settins would be to put everything on the middle setting. If you can't get the dynamics you want from that, then lower some settings. This is a great no-thinking approach; use your ears.
"You must stab him in the heart with the Bone Saber of Zumacalis... well, you could stab him in the head or the lungs, too... and the saber, it probably doesn't have to be bone, just anything sharp lying around the house... you could poke him with a pillow and kill him."
- Aqua Teen Hunger Force, The Universal Re-Monster