"compress a datafile such that ..." appears to give a self-contained definition of what it means to compress in the context of the challenge.
In any case, no compression algorithm makes all inputs smaller. So, just because a data encoding doesn't make a particular input case smaller doesn't imply that it's not a compression algorithm.
In any case, no compression algorithm makes all inputs smaller. So, just because a data encoding doesn't make a particular input case smaller doesn't imply that it's not a compression algorithm.