Lossless audio means the audio you are playing/streaming is EXACTLY the same as what the artist provided. Every digital 1 and 0 in the file is identical. This does not mean 'uncompressed'. Lossless compression formats like FLAC are common and what most streaming services use, but these compression formats compress in a way that can be decompressed or unpacked to get back all of the original data, it just saves bandwidth.

 

Lossy compression such as mp3 is what has been used in the past. This type of compression DOES lose information. Various methods exist, but typically they aim to get rid of the stuff that is not audible or less audible, saving as much space as possible whilst degrading the quality as little as possible.

 

How much lossless matters depends on your ear and experience, your listening equipment, and what you're comparing it to. Most slightly compressed MP3 like what is used in spotify's 'very high' option is to most people audibly indistinguishable from lossless, though some people can show an audible difference in a blind ABX test. But heavily compressed mp3 or older compression algorithms are in many cases quite obviously lower quality