This format has the best level of compression among all common Linux formats. But this comes at a cost - in time and in CPU. Here's how you compress a directory using tar.bz2:
# tar -jcvf archive_name.tar.bz2 directory_to_compress
This will extract the files in the archive_name.tar.bz2 archive in the current directory. To extract the files to a different directory use:
# tar -jxvf archive_name.tar.bz2 -C /tmp/extract_here/