TF supports versions 1 and 2 of the Mud Client Compression Protocol (MCCP) described at http://www.randomly.org/projects/MCCP/. MCCP allows a server to compress the data stream it sends to the client (TF), which may improve throughput on a poor connection.
MCCP is transparent to the user. When TF connects to a server that supports MCCP, it will be enabled automatically, unless the mccp variable is off. The listsockets command will indicate that MCCP is enabled.
MCCP v1 is broken, and may not be supported in the future if it is found to interfere with valid protocols. If you use a server that has only MCCP v1, you should encourage the owner to upgrade to add support for v2.