The CompressionWebpackPlugin optimizes webpack builds by compressing assets using algorithms like gzip, brotli, and deflate. This reduces the size of your application's files, leading to faster load times for users. Configuration options allow fine-grained control over compression levels, algorithms, and file inclusion/exclusion, tailoring the plugin to specific project needs. By shrinking payload sizes, it significantly improves website performance and bandwidth consumption, enhancing the overall user experience. This plugin is vital for production deployments seeking optimal efficiency.