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A general description is here.
gzfile() looks at the file header and so can now also read bzip2-ed files and xvz-compressed files.
file() for open = "", "r" or "rt" will automagically detect compressed files (from gzip, bzip2 or xvz). This means that compressed files can be specified by file name (rather than via a gzfile() connection) to read.table(), readlines(), scan() and so on.