[michaelt]

LZ77 compression (a key part of gzip and zip compression) uses a 'sliding window' where the compressor can tell the decompressor 'repeat the n bytes that appeared in the output stream m bytes ago'. The most widely used implementation uses a 15 bit integer for m - so the decompressor never needs to look more than 32,768 bytes back in its output stream.

Many compression standards include memory limits, to guarantee compatibility, and the older the standard the lower that limit is likely to be. If the standards didn't dictate this stuff, DVD sellers could release a DVD that needed a 4MB decompression window, and it'd fail to play on players that only had 2MB of memory - setting a standard and following it avoids this happening.