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This video tutorial demonstrates how to compress a large file into a smaller one using an application called 7-zip. By comparing a 4 gigabyte file with its original size of 11 gigabytes, it shows that compression can reduce the file size by more than 50%. It is recommended to use the 64-bit version of 7-zip for faster compression. After downloading 7-zip, right-click on the file, choose options, and select the compression level from normal to ultra. Wait for the compression process to finish to see the smaller file size.