It works fine, but from what I understand LZW tiffs are not universally recognized.
One of the more basic ways to reduce space, without loosing data, is to replace repeating sequences of data with a single token; such as the common words (and, or, but, etc.) or common parts of words (ing, less, etc.). The same can be done with the RGB data of an image file. There are other methods, and much more complex ways of finding reoccuring sequences, but I hope you get the idea.
As long as the programs you use tiff files with support LZW compression, there is little reason not to use it.
David
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