From Sheldon..
Compact FrameTraditional "road" frames have been built with level
top tubes since the early 1900s. The influence of mountain and BMX bike design has led to the increasing popularity of frames with sloping top tubes, higher at the front.
"Compact" road frames have sloping top tubes, and are intended to be used with a long
seatpost. Compact frames are a little bit lighter than traditional ones, but this is partially offset by the weight of the longer seatppost. Some riders believe these frames are stiffer.
When the
down tube and seat tube intersect directly above the front axle, as is usual with a road frame, weight loading only tensions the down tube and compresses the top tube. When the intersection is farther back than the axle, the bending loads on these tubes require the front end of the frame to be of stronger construction.
Manufacturers like compact frames because they are more versatile in terms of fit. Usually 3 or 4 sizes are enough to fit 98% of customers. This saves a lot of money for a manufacturer who doesn't need to deal with so many different sizes.