.gz files are compressed with the GZip algorithm
.bz files are compressed with either the BZip algorithm or the BZip2 (and poorly named) since:
.bz2 files are compressed with the BZip2 algorithm.
They are all compressed archives of files. They are to Linux (and other *nixen) what the .zip files are to Windows and what the .lzh files are/were to the Amiga.
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