What, may I ask, is wrong with "compressed" or even "compacted"?
MaxQ, I agree that it's pretty yucky as a word, but being a physicist, I know that often a word is invented or altered because it takes on a very specific meaning, one which the original word doesn quite work for, or is unclear because there's already a specific physical meaning to the original word. I don't have my nuclear physics books here with me (since I am now in physical oceanography) and googling it just produced a lot of papers by people who obviously already knew what it meant.
It seems to have something to do with compact spaces. I knew this definition of a compact space four years ago when I took a metric spaces class but it's gone now. Anyway, I'm basing this on two lines I found on the web somewhere, if you have a space which isn't compact, and you add an element which makes it compact, then you've compactified it.
Anyway, physics/math people don't follow the same rules everyone else does when making words to describe something new. You kind of get used to it when you're there.