Musepack is an audio compression format with a strong emphasis on high quality. It's not lossless, but it is designed for transparency, so that you won't be able to hear differences between the original wave file and the much smaller MPC file.
It is based on the MPEG-1 Layer-2 / MP2 algorithms, but since 1997 it has rapidly developed and vastly improved and is now at an advanced stage in which it contains heavily optimized and patentless code.
Musepack is a purely variable bitrate codec and does not work at a constant bitrate. A big part of Musepack's quality comes from its highly variable bitrate handling which results in low bitrate for less demanding regions of the audio data and higher bitrate where it's needed. This allows MPC files to be as small as possible and not lose any valuable bits like encoders that work at a constant bitrate. After all, the purpose of a lossy audio encoder is to provide the highest possible quality at the lowest possible file size, and Musepack represents progress, as opposed to old, suboptimal legacy methods.