The overall mechanism of an air compressor is a piston or rotary element (e.g. rotary screw or vane) that draws in air, which is compressed into a storage tank. Naturally, since the piston or rotary element needs to move consistently and smoothly for this to work, it generally must be lubricated.
In a lubricated air compressor, there is lubricating oil which will keep the piston or rotary element 
running well without damaging the system. The lubricant also helps to dissipate high temperature and maintain air compression efficiency.
Oil-free of charge air compressors also use a piston or rotary element, however they get around the lubrication problem by coating the compression element with a pre-lubricating material like Teflon. Some oil-free compressors may also use water in place of oil for the lubricating and cooling procedure. These alternate Water Lubricated Air Compressor materials protect the pump and invite the mechanism to go smoothly with no need for any oil-centered or synthetic lubrication.