Mod_deflate is an Apache web server module that uses compression to reduce the bandwidth needed to send web pages between the server and the end user's computer.
See http://httpd.apache.org/docs/2.4/mod/mod_deflate.html
Modern web applications such as Moodle send a lot of text from HTML code, to CSS styles, to javascript, all of which can achieve high compression rates.
So how does reducing bandwidth usage make your website faster? It's actually a bit of a trick. The website itself probably isn't really faster in terms of the number of users or pages it has the capacity to generate. Each page probably will take about the same build time as before on the server. In fact if your server's undersized in terms of CPU resources it might even reduce the server's overall capacity. But for the end user the perceived responsiveness of the website is significantly increased. This is because it takes a lot less time for the page to be transported from the server to the user's computer. This can have a significant impact on user satisfaction and is relatively easy to setup for knowledgable administrators. On a recent engagement, I actually saw a 2-3 second improvement in page load times for the end user, even while accessing from the local campus network. Needless to say the Moodle administrator for this site was very happy with the improvement and you will be too!
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