Source : Free On-Line Dictionary of Computing

LZ78 compression
     
        A {substitutional compression} scheme which works by entering
        phrases into a dictionary and then, when a reoccurrence of
        that particular phrase is found, outputting the dictionary
        index instead of the phrase.  Several {algorithms} are based
        on this principle, differing mainly in the manner in which
        they manage the dictionary.
     
        The most well-known Lempel-Ziv scheme is Terry Welch's
        {Lempel-Ziv Welch} variant of LZ78.
     
        [comp.compression {FAQ}].