Arithmetic coding is a way of compressing data, which means making it take up less space on a disk or in memory. It works by looking at the different characters (like letters, numbers, or symbols) in a string of text and assigning a numerical value to each one. Then, it encodes the text by finding the fraction of numbers associated with each character and combining the fractions into one number. This way, a lot of information can be stored in a very small amount of space.