Compression - no.
A shed load of other processing - yes.
The camera module itself produces 10 bit bayer data, so it goes through processing for black level, white balance, demosaicing, demonising, colour space conversion, and normally resizing, in order to produce 8 bit yuv 4:2:0 or 4:2:2 images on the screen. (You can convert it to rgb if you so wish, but the hardware processing is typically producing yuv)
Software Engineer at Raspberry Pi Trading. Views expressed are still personal views.
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