How to enable HTTP compression in IIS v5 on Windows 2000
:

HTTP compression provides faster transmission time between
compression-enabled browsers and IIS. You can either compress
static files alone, or both static files and applications. If your
network bandwidth is restricted, you should consider HTTP
compression, at least for static files, unless your processor
utilization is already extremely high.

When IIS receives a request, it checks to see if the browser is
compression-enabled. IIS then checks the file name extension to see
if the requested file is a static file or contains dynamic content.
If the file contains static content, IIS checks to see if the file
has previously been requested and is already stored in a compressed
format in the temporary compression directory. If the file is not
stored in a compressed format, IIS sends the uncompressed file to
the browser, and adds a compressed copy of the file to the
temporary compression directory. If the file is stored in a
compressed format, IIS sends the compressed file to the browser. No
files are compressed until they have been requested once by a
browser.

If the file contains dynamic content, IIS compresses the file as
it is generated and sends the compressed file to the browser. No
copy of the file is stored.