Codec is the blend of two words i.e. coder and decoder (co + dec). A codec encodes a signal or a data stream for storage and transmission, probably in encrypted form and the decoder function converses the encoding for editing or playback. Codecs are mainly used to compress the large video and audio files to transmit flawlessly over the internet. At the users end the video/audio files are decoded for viewing.
Most commonly, codecs are used in streaming media, video editing and videoconferencing applications. Some codec examples are XviD, DivX, RealAudio, MP3, RealVideo and WMA, however, there are several other incomprehensible codecs.