FLAC (which stands for Free Lossless Audio Codec) is a way to code audio files. It makes those audio files smaller, without affecting the sound quality. It is unlike MP3, because when encoding audio using an MP3 encoder, information is lost and cannot be recovered. When a FLAC file is decoded, it will be identical to the original raw audio.
Lossy encoders, such as MP3 encoders will generate smaller files than lossless encoders such as FLAC.