What riley said.
You could almost imagine it along the lines of having a stack of 50 thousand pages of paper, each one saying "The cake is a lie" one time. Rather than, for the sake of book keeping, carry around all 50 thousand pages, you just carry around one page that says ""The cake is a lie" (x50,000)". Same thing, but 1/50,000 the size.
Granted it is more complicated than that, but thats a way to look at it.
Same thing With WarioWare: DIY for the DS. Rom is 128 mb, but the game data, when trimmed, is 16mb.
Now NOT THAT I AM CONDONING DOWNLOADING GAMES because that is horribly horribly horribly wrong *smirk* but to save yourself the hassle of spending 3 days downloading a game that has 110 mb of data, if you see a "WiiScrubbed" download or something along those lines, it is easier to use that. that way youre ONLY downloading that 110mb rather than the 4.37 gigs (however, when you extract the iso, itll still take up 4.37 gigs - effectively that paper scenario I said earlier)