It is the settling and packing together of the soil materials. It is caused by foot traffic, lawn mowers, vibration from traffic, weather including rain and snow. With compacted soils, roots cannot grow and expand, and water and nutrients cannot get to the roots. By opening up the soil, airflow is improved which stimulates microbial action. Microbes feed on thatch and convert thatch back to topsoil.
Weeds grow best in compacted hard soils.
Grass grows best in soil that is loose where roots can spread easily. With time aeration will promote grass growth and thickening. Thick grass will crowd weeds out, and eliminate bare soil areas where weed seeds have the opportunity to germinate. Clay soils compact hardest. Kentucky Blue Grass is most likely to have heavier thatch build-up.