Saying Y here includes support for SquashFS 4.0 (a Compressed
Read-Only File System). Squashfs is a highly compressed read-only
filesystem for Linux. It uses zlib compression to compress both
files, inodes and directories. Inodes in the system are very small
and all blocks are packed to minimise data overhead. Block sizes
greater than 4K are supported up to a maximum of 1 Mbytes (default
block size 128K). SquashFS 4.0 supports 64 bit filesystems and files
(larger than 4GB), full uid/gid information, hard links and
timestamps.

Squashfs is intended for general read-only filesystem use, for
archival use (i.e. in cases where a .tar.gz file may be used), and in
embedded systems where low overhead is needed. Further information
and tools are available from http://squashfs.sourceforge.net.

If you want to compile this as a module ( = code which can be
inserted in and removed from the running kernel whenever you want),
say M here and read Documentation/modules.txt. The module
will be called squashfs. Note that the root file system (the one
containing the directory /) cannot be compiled as a module.

If unsure, say N.

source code:

fs/squashfs/