A little background here. There are two fundamentally different ways you can reduce the size of a file: perfect-fidelity compression, and approximating "compression".
Perfect-fidelity codecs, such as SheerVideo, slim down the file by packing all the information in the file more efficiently, so it takes up less space. Perfect-fidelity compression is also known as lossless compression, in the sense of "compression without information loss"; or as nondestructive compression, because it does not destroy any information. However, the term "lossless" has often been shamelessly abused by marketeers as misleading shorthand for such nonsensical concepts as "visually lossless", "virtually lossless", or "kinda lossless", meaning "we wish it were really lossless" or "if you close your eyes, you won't notice the difference".
There are two basic techniques lossless codecs can use to compress data: removing wasted space, and entropy coding.
Removing wasted space:
optimal symbol code length ∝ -log(symbol probability)
A general problem with entropy coding is that for rare pathological cases, a compressor will actually expand a file so that it takes up more space than the original, rather than compressing it. In the Morse code example, a message consisting of nothing but 'j's would take much longer to send in Morse code than in a uniform-length code.
SheerVideo both removes wasted space and uses entropy coding. However, SheerVideo safeguards against pathological cases, ensuring that even the most unusual cases do not expand the file by more than a few bits.