The term codec is an acronym for coder/decoder, and is commonly referred to when working with data conversion and compression.

Codecs encode a stream or signal for transmission, storage or encryption and decode it for viewing or editing.

A codec is usually a program that encodes and decodes (compresses and decompresses) a digital data stream or signal.

A codec enables an operationg system or pgoram to properly play audio or video in a particular format.

DiVX and MPEG are examples of video codecs (unlike AVI, which is actually a "container" format used by other codecs, but not a codec itself).