Zip Files enable you to compress multiple files into 1 single file for ease of download and smaller filesize. If you download a .zip file, it will either usually be a big file or multiple files inside.
However, ZIP files do not offer the best compression and features for compressing files, and it is recommended you use .RAR Files instead.
The only real benefit of .zip over .rar is that all Windows XP Installations come with support for extracting the files, where as you need to install a program to extract .rar files.
However, if you wish to use a more powerful utility for creating and extracting Zip Files, you may use WinRAR or WinZIP.
Simply double clicking the zip file will open it in Windows just as it was a folder, where you can then drag and drop the files out of the zip file. Right clicking the zip file should also have a menu to extract the files.