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LZMA (Lempel-Ziv-Markov chain Algorithm) is the compression algorithm that makes 7z files so small. It typically compresses 20-30% better than gzip at the cost of slower compression speed. Decompression is fast and memory-efficient, which is why the algorithm found its way into countless applications beyond 7-Zip.
The .lzma extension is the raw compressed stream — no container, no metadata, just compressed bytes. In practice, you'll more often encounter LZMA inside container formats: .7z (7-Zip's archive), .xz (the modern replacement with checksums and metadata), and even .zip (which supports LZMA as a compression method).
XZ Utils has largely superseded raw .lzma files for standalone use, adding integrity checks and better streaming support. But LZMA the algorithm powers compression across the software world — from Android OTA updates to Debian package compression to UEFI firmware images.