Today's post is based on a bunch of questions I've had around the various compression features in SQL Server 2008.

Does turning on data compression or backup compression compress the transaction log files on disk?

No. The transaction log is not compressed in any way under any circumstances. Rows from tables and indexes that have compression enabled will be logged in their row compressed forms, even if page compression is enabled.

Does data compression compress LOB columns?

No. There is no native compression support for any LOB columns (n/text, image, n/varchar(max), varbinary(max), XML), whether stored in-row or out-of-row. There's also no native compression support for FILESTREAM data.

Does log shipping use compression to compress the logs being shipped?

Log shipping does not ship transaction logs – it ships log *backups*. If backup compression is enabled for the instance hosting the log shipping primary database, or the log shipping job is changed to enable backup compression, then the log backups will be compressed and less data will be sent over the wire to the log shipping secondary(s).

Is backup compression the same as log stream compression with database mirroring?

No. Backup compression compresses backups (see my previous blog post here). Log stream compression with database mirroring compresses transaction log records before sending them between the principal and the mirror (see my previous blog post here).

Should I just turn on backup compression at the instance level?

Not necessarily. It depends whether the majority of database on the instance will benefit from backup compression. Backup compression (and any compression algorithm) uses CPU whether a decent compression ratio is achieved or not. Check what compression ratio is achieved first and then enable backup compression if its worth it. Otherwise, just enable it for individual databases.

Does data compression use the same algorithm as backup compression?

No. Backup compression uses a proprietary block-based compression algorithm that is part of Windows. Data compression uses up to 3 algorithms, depending on the level of compression configured. Row compression just makes all non-LOB columns into variable-length columns. Page compression does row compression, then common-prefix compression for each table columns, then common-value dictionary compression for each page. Details can be found at the following BOL sections: Row Compression Implementation  and Page Compression Implementation.

Hope this helps!