Yes, the files are compressed. Yes, the video cutscenes might look slightly pixelated. And yes, the legality is a quagmire. But thanks to the anonymous scene groups who spent nights reverse-engineering MIL-CD, a 25-year-old console still spins to life in basements and dorms around the world.
Unlike the standard 1.2GB discs used by Sega, a CDI (DiscJuggler Image) is a modified format designed to fit onto a standard 700MB CD-R. sega dreamcast cdi archive
The is not just for pirating Sonic Adventure (though it's there). It preserves the fringe: Yes, the files are compressed
If you are looking to explore the Sega Dreamcast CDI archive, here is the ethical roadmap most hobbyists follow: the files are compressed. Yes