The IP Payload Compression Protocol (IPComp) reduces the size of IP packets. It is standardized by the IETF in RFC 3173.
Encrypted data (such as IPsec) cannot be compressed. Link level compression such as V.42bis will not be effective when used with IPsec. This means that compression has to occur before encryption, e.g. through IPComp.
IPComp is enabled on Openswan by adding "compress=yes" to ipsec.conf. A value of yes causes Openswan to propose both compressed and uncompressed, and prefer compressed. A value of no prevents IPsec from proposing compression; a proposal to compress will still be accepted.
