Then please explain what it does? And if it's what I said but explained differently, fuck you.
The decoder has a selection of up to 256 pre-defined files in it. It doesn't write the file into the decoder during encode, so only up to 256 files can be compressed to one byte in the first pass. All other files are either compressed normally, or if that results in a larger file (e.g. if the file is already compressed) then the last byte gets encoded into the filename extension and removed from the file. In other words, repeatedly compressing arbitrary files results in a zero byte file with a name about three times as large as the original file contents, consisting mostly of filename extensions that code for the byte sequence.