Disk images can be either raw or compressed with some kind of compression algorithm like LZW. Images of CD-ROMs most often carry the file name extension .iso, referring to the ISO 9660 file system commonly used on such discs.
A common use of disk images is for remote distribution of software such as Linux distributions: installation floppy disks or CD-ROMs can be recorded as disk image files, transferred over the Internet, and the contents of the original disk(s) duplicated exactly by end users with their own floppy or CD-R drives.
Another common use is to provide virtual disk drive space to be used by emulators and virtual machines.