The way the two audio stores differ at night and day. Simply put, a WAV file (which is PCM audio) stores much more data than an MP3 file.
Sound PCM measures the pressure on each sample. There are many patterns. Audio CD quality uses 44,100 samples per second per channel. The red lines here are patterns:

Graph from: http://en.wikipedia.org/wiki/Sampling_rate
MPEG-1 Layer 3 (and many other lossy audio compression codecs) use a different audio encoding method. Instead of measuring pressure over time, they measure the frequency components over time. MP3 encoders determine which frequencies are present in a signal for a short period of time called a frame. A frame can be 576 samples or so long. For these samples, they reproduce a set of frequencies.
Now all this is too simplified. There are many good tricks in MP3 to filter out frequencies that will be masked by others, and some nice smoothing of the playback so that it sounds close to the original.
You can find my answer here in more detail: https://video.stackexchange.com/a/635/129
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