The general mechanism of an air Water Lubricated Air Compressor compressor is a piston or rotary component (e.g. rotary screw or vane) that draws in surroundings, which is compressed into a storage tank. Naturally, because the piston or rotary element needs to move regularly 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 mechanism. The lubricant also really helps to dissipate high temperature and keep maintaining air compression efficiency.
Oil-totally free air compressors also use a piston or rotary element, but they get around the lubrication problem by coating the compression element with a pre-lubricating materials like Teflon. Some oil-free compressors 
could also use water instead of oil for the lubricating and cooling process. These alternate materials safeguard the pump and allow the mechanism to move smoothly with no need for any oil-centered or synthetic lubrication.