Contextual compression in Langchain works by first splitting a long text into smaller chunks. Each chunk is then compressed by removing unnecessary words while keeping the main meaning. Finally, the compressed chunks are combined to produce a shorter version of the original text. This process helps manage large texts efficiently by reducing their size but preserving important content. The example code shows splitting a text into two parts and compressing each before joining them back. The execution table traces each step, showing inputs and outputs. Variables like 'chunks' and 'compressed' track the state changes. Key moments clarify why splitting is needed and how compression keeps meaning. The quiz tests understanding of outputs at each step and effects of chunk size. Overall, contextual compression is a useful technique to shorten text smartly using Langchain tools.