The term codec is a portmanteau of the words encoding (or coding) and decoding (CO-DEC). Video codec is often correctly used to describe any network video device that both encodes and decodes video, typically in real time – such as a video conferencing endpoint. Sometimes, codec refers to the fundamental compression engine that is used within an encoder, decoder, or combination unit (“what codec is it using?”) – generally H.264 or other for video or AAC-LC for audio.
In general, a “codec” is used to compress information, such as an audio or video signal, for transport over an IP network, and then decompress that information at the other end. Real-time applications for encoding require significant computational power. For example, an HD video stream of a native bandwidth of 1.5 Gbps (1,500 Mbps) is compressed by as much as 1000 times in real time to 1-10 Mbps for network transport.
