Compressing content on server before sending it over HTTP is a good practice since it saves a lot of traffic and makes transfers faster.
For example, Prototype.js is 123KB size and after Gzip compression it becomes only 28KB.
GZIP Compression also affects HTML so even primed cache requests that downloads mostly only HTML will be faster.
So we should enable server-side compression of textual components: Stylesheets, Javascript, HTML, XML (there is no need to compress images as they already compressed).

For Apache2:
compression done by mod_deflate

AddOutputFilterByType DEFLATE text/html text/plain text/css text/javascript application/x-javascript text/xml

For Lighttpd:
enable mod_compress in lighttpd.conf and add configuration directives:

compress.cache-dir = "/tmp/"
compress.filetype = ("text/plain", "text/html", "application/x-javascript", "text/css", "text/javascript", "text/xml")

Nginx configuration directives:

gzip on;
gzip_min_length 1000;
gzip_types text/html text/plain text/css text/javascript application/x-javascript text/xml;

Besides compression there is minification (removing comments and unnecessary whitespaces) that can further reduce size of Javascript.
Minified Prototype.js becomes 92KB size uncompressed and 23KB compressed, this is 20% less than compressed non-minified script.
There are number of tools for minification exists, I’m using JSMin (http://crockford.com/javascript/jsmin).