LC_RLE1, as named by Lunar Compress, is a lossless data compression format, used by Super Mario World to compress the overworld layer 2 event data's tilemap properties.
The compressed data consists of "chunks", each with a header:
bits 76543210 CLLLLLLL C: Command bit LLLLLLL: Length
Here's a list of the command bit values the LC_RLE1 routine can use during decompression:
0 "Direct Copy" Followed by (L+1) bytes of data 1 "RLE" Followed by one byte to be repeated (L+1) times
The end of the decompression data is reached when the header byte and the following byte both are $FF. This means that the compression does not support 128 bytes of $FF compressed (because the result will be $FF $FF, which aborts the decompression). However, you can compress 127 bytes instead so that the result becomes $FE $FF)
During the decompression, the decompressed chunks can be outputted into a buffer which is either RAM or SRAM. SMW uses the RAM address $7F:0000 as its decompression buffer. The maximum RLE decompression length is 128 bytes.
You can use the LC_RLE1 compression to mainly compress things like tilemap. Technically you can compress anything with this format, but tilemaps are preferred due to the often-occuring consecutive repeating bytes.
You can see an LC_RLE1 decompression routine setup at SNES $04:DD40. The decompression routine itself is located at SNES $04:DD57. The decompression routine does not support data which crosses bank boundaries. Therefore, you will have to take care of that.