A co-worker asked what happens when, in an AS2 project, you select "compress movie" in Flash Professional.
I have a vague recollection that the Actionscript chunks are LZW compressed but I don't have any evidence of this.

Does anyone know of a link that talks about this option and/or have information on the AS2 file format?

SWFs are zipped (just after the header).

Recentely LZW compression support was added - I think you need a command line tool to recompress the SWF.