Delta compression is a compression of delta encoded values. Delta encoding is a transformation that produces different statistical distribution of numbers. If the distribution is favourable to the compression algorithm chosen, it lowers the amount of data. It works very well in a system like a game where entities move only slightly between two updates.
Let's say you have 100 entities in 2D. On a large grid, 512 x 512. Considering only integers for the sake of example. That's two integer numbers per entity or 200 numbers.
Between two updates, all our positions change either by 0, 1, -1, 2 or -2. There have been 100 instances of 0, 33 instances of 1 and -1 and only 17 instances of 2 and -2. This is pretty common. We choose Huffman coding for compression.
The Huffman tree for this will be:
All your 0's will be encoded as a single bit. That's only 100 bits. 66 values will be encoded as 3 bits and only 34 values as 4 bits. That's 434 bits or 55 bytes. Plus some small overhead to save our mapping tree, as the tree is tiny. Note that to encode 5 numbers, you need 3 bits. We have traded here the ability to use 1 bit for '0' for the need to use 4 bits for '-2'.
Now compare this to sending 200 arbitrary numbers. If your entities can't be on the same tile, you are almost guaranteed that you get a bad statistical distribution. The best case would be 100 unique numbers (all on the same X with different Y). That's at least 7 bits per number (175 bytes) and very hard for any compression algorithm.
The delta compression works in the special case when your entities change only a little. If you have a lot of unique changes, delta encoding will not help.
Note that delta encoding and compression is used in other situations with other transformations as well.
MPEG splits picture in small squares and if part of the picture moves, only the movement and a change is brightness are saved. In a 25fps movie, a lot of changes between frames are very small. Again, delta encoding + compression. Works best for static scenes.