What ARE DDS files?

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Compressed Textures

Microsoft DirectDraw Surface (.dds) file format.

up 8:1 compression.

will work with OpenGL as well:
The DXT formats are a standard part of the Direct3D API and are available for the OpenGL API through the ARB_texture_compression and GL_EXT_texture_compression_s3tc extensions.

S3TC because it was S3 graphics that created ito show off their awesome Savage3D cards. (they actually werent that bad, I had one but Nvidia/ATI has since dominated the market)