DXT Texture compression

DXT image compression (also S3TC) allows you to save:

DXT1_RGB -> 1:8  RGB 565 4 level only
DXT1_RGBA -> 1:8  RGB 565 4 level and 1 bit alpha channel
DXT5_RGBA -> 1:4  RGB 565 4 level and 7 level alpha channel

As a result, for certain textures DXT can be used to compress images with reasonable loss of clarity.

Most importantly, within the DXT5 compression scheme, you still have 4x4 texel blocks interpolating between two color values. These color values are RGB565 (5 bits of red, 6 bits of gree, 5 bits of blue) and thus the green channel can be more precise. Also, the alpha channel has all 8 bits, but interpolates between 7 alpha values per texel. As a result, you can use DXT5 to store compressed normal maps by storing the x component in the green channel, and the y value in the alpha component. Then, in the shader, you can calculate the missing z value from assuming your normal map was actually normalized (x^2 + y^2 + z^2 = 1).

More updates later.
Z out.