tar is not a compression program. It just combines several files
into one, without compressing them. tar file are often compressed with
'compress', resulting in a .tar.Z file. See question 2, file type .tar.Z.
GNU tar has the capability to (de)compress files as well.

When you have to archive a lot of very small files, it is often preferable to
create a single .tar file and compress it, than to compress the individual
files separately as in a zip archive. The compression program can thus take
advantage of redundancy between separate files.  The disadvantage is that you
must uncompress the whole .tar file to extract any member. You can also
improve compression by grouping files by type, as in:

  tar cvf - `ls | sort -t. +1` | gzip > file.tar.gz

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