Lossless compression is used for the actual data transfer between PC and Displaylink adapter, to decrease the USB bandwidth requirement. But it is lossless, so the image on the monitor will be as crisp and perfect as it was originally drawn.

My big beef with DisplayLink, is their utter lack of support for the USB 3.0 variants on Linux. The USB 2.0 chips/adapters all work beautifully well, but they're being cripplingly secretive about the newer superspeed devices.