@The response to jpgs: GENIUS!
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And posterizing a image is sorta like lossy compression (jpg), except it's optimizing the image by making VERY minute changes to the color table.
So for example, if there was 2 colors that were really really close in color, i.e. #000000 and #000001 - no one is every going to notice the difference between the two, and it would save space (one less color to consider in the .png color table) if either #000000 or #000001 was discarded, and the discarded color change into the one that was kept.
So yes, there IS a loss in quality, but when you're talking about .png images - which hold millions of colors, throwing away a few thousand can dramatically decrease the file-size while still retaining pseudo-lossless conditions.
And that is basically posterization
/end class
For more information, here's a much more detailed (and boring) article on .png optimization:
http://www.smashingmagazine.com/2009/07/15/clever-png-optimization-techniques/