FLAC is a compressed, lossless audio format that reduces file size (compared to uncompressed formats like WAV) without sacrificing audio quality.
The compression is the same idea as zipping a file. Data is packed down to roughly half the original size and then unpacked perfectly on playback, so nothing is discarded and a FLAC sounds exactly like the WAV it came from while taking up far less room on a drive. It is also free and open, with no licensing attached, which is part of why it became the standard for lossless downloads.
For DJs it is the practical way to keep a lossless library without filling a laptop. Bandcamp and most direct artist stores offer FLAC alongside MP3, so it usually costs nothing extra when buying music. Support in modern DJ software is good, though it arrived later than MP3 support, so older equipment may not read it.
FLAC may not reach your USB
Rekordbox supports FLAC in PERFORMANCE mode, where you play from the laptop, but high-resolution formats such as FLAC and ALAC are not supported in EXPORT mode, the mode you use to write a USB drive for club players. AlphaTheta’s own explanation is that many players cannot read those formats, and rekordbox deliberately does not transcode on export because converting would shift cue points and beat grids. See AlphaTheta: audio file formats in PERFORMANCE mode vs EXPORT mode.
Serato and Traktor both read FLAC directly with no such restriction. See Serato: Supported File Types and Native Instruments: Which audio file formats does TRAKTOR support?.