Compact() takes a variable number of parameters. Each parameter can be either a string containing the name of the variable, or an array of variable names. The array can contain other arrays of variable names inside it; compact() handles it recursively.
For each of these, compact() looks for a variable with that name in the current symbol table and adds it to the output array such that the variable name becomes the key and the contents of the variable become the value for that key. In short, it does the opposite of extract(). It returns the output array with all the variables added to it.
See also extract().