droste.zip is a ZIP file that contains an exact copy of itself.

This page used to have an interactive explanation, but I lost it. Try wgreenberg 's version, or read Russ Cox's explanation from 2010.

Related

I have a weak spot for compression hacks. Here are two good ones:

"Rosetta Flash" An alphanumeric string that is also a valid compressed Flash file.

Encoding Web Shells in PNG IDAT chunks An image file that doesn't have HTML in it, but does after you PNG-compress it.