Wikipedia
SquashFS is a compressed read-only file system for Linux. SquashFS compresses files, inodes and directories, and supports block sizes up to 1 MB for greater compression. SquashFS is also the name of free software, licensed under the GPL, for accessing SquashFS filesystems.
SquashFS is intended for general read-only file-system use and in constrained block-device memory systems (e.g. embedded systems) where low overhead is needed. The original version of SquashFS used gzip compression, although Linux kernel 2.6.34 added support for LZMA and LZO compression, Linux kernel 2.6.38 added support for LZMA2 compression (which is used by xz), and Linux kernel 3.19 added support for LZ4 compression.
Linux kernel 2.6.35 added support for extended file attributes.