The BZip2 is another compression utility, similar to GZip, but with more strong compression and more liberal license, also free from patented algorithms and currently popular almost as the GZip. BZip2 is not archiving utility, i.e. its can't roll up several files together. It simply compress the specified file.
The quote from BZip2 manual: "bzip2 compresses files using the Burrows-Wheeler block-sorting text compression algorithm, and Huffman coding. Compression is generally considerably better than that achieved by more conventional LZ77/LZ78-based compressors, and approaches the performance of the PPM family of statistical compressors". More information about bzip2, you can find at BZip2 homepage, on the BZip2 How-To and MacBZip2 pages.