What is an MP3 file?

Simply:

A digital audio file format that compresses the audio to reduce file size while maintaining “acceptable” audio quality.  MP3 files are the industry standard for consumer digital audio players.

More technically:

Mpeg(-1 or-2) Audio Layer 3.  A patented audio encoding format for data compression.

From Wikipedia:

An MP3 file that is created using the setting of 128 kbit/s will result in a file that is about 11 times smaller than the CD file created from the original audio source. An MP3 file can also be constructed at higher or lower bit rates, with higher or lower resulting quality.

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