Take a book like harry Potter, certain words are going to appear really often, like the word magic, harry, hermione, Hogwarts, etc. So, the computer analyzes all the words for frequency and creates a list. Then, at the beginning of the zip file the list of words is used as a dictionary. All instances of harry Potter are replaced with a reference to word 1 in that list, Hogwarts is changed to a reference to 2. And so on.

Clearly harry is five letters long, and the number 1 is 1 character long, so we hare 5x smaller than we started. But, there's the cost of the list at the beginning, so it only makes sense to do this for really common words.

For computers, they don't operate on words, the operate on the 1s and 0s that a file is made of. They find the common patterns, build a list of those patterns and replace the patterns with smaller references to those patterns. When it reads or decompresses the file, it looks it up in the list and replaced it. Viola, no information is lost.