MPEG Layer 3 is a popular format for storing music. It has many variants but has been surpassed by .mp4.
How it works
It works mainly by binning all the frequencies we can't even hear (although some people claim we can feel them). Another method is that if there are two sounds playing (i.e multiple instruments), we only hear the louder one, so the other one is binned too.
One of the major differences with pure CD audio is the bit rate (CD audio is roughly 32mb/song). MP3 files are stricter by shoving this down to smaller numbers (generally 128kb for low quality, 276kb for medium and 320kb for high).
MP3 has had a load of bad talk around, saying that CDs sound superior but with online MP3 buying services becoming more popular, CDs may die.
Other people argue that MP3s are bad because of patent issues (now removed), and the .ogg format is available as a patent-free codec.