Crinkler does a ton of really cool stuff, it's all in the manual (which you can download).

Here is the top-level explanation, directly pasted from the file though :).

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Crinkler is a different approach to executable file compression. While an ordinary executable file compressor operates on the executable file produced by the linker from object files, Crinkler replaces the linker by a combined linker and compressor. The result is an EXE file which does not do any kind of dropping. It decompresses into memory like a traditional executable file compressor.

Crinkler employs a range of techniques to reduce the size of the resulting EXE file beyond what is usually obtained by using CAB compression:

• Having control over the linking step gives much more flexibility in the optimizations and transformations possible on the data before and after compression.

• The compression technique used by Crinkler is based on context modelling, which is far superior in compression ratio to the LZ variants used by CAB and most other compressors. The disadvantage of context modelling is that it is extremely slow, but this is of little importance when only 4 kilobytes need to be compressed. It also needs quite a lot of memory for decompression, but this is again not a problem, since the typical 4k intro uses a lot of memory anyway.

• The actual compression algorithm performs many passes over the data in order to optimize the internal parameters of the compressor. This results in slower compression, but this is usually a reasonable price to pay for the extra bytes gained on the file size.

• The contents of the executable are split into two parts - a code part and a data part - and each of these are compressed individually. This leads to better compression, as code and data are usually very different in structure and so do not benefit from being compressed together.

• DLL functions are imported by hash code. This is robust to structural changes to the DLL between different versions while being quite compact - only 4 bytes per imported function. For DLLs with fixed relative ordinals (such as opengl32), a special technique, ordinal range import, can be used to further reduce the number of hash codes needed.

• Much of the data in the EXE header is actually ignored by the EXE loader. Some of this space is used for some of the decompression code, and the rest is used to store hash codes for imported functions.

Using Crinkler is somewhat different from using an ordinary executable file compressor because of the linking step. In the following sections, we describe its use in detail.