The overall mechanism of an air compressor is a piston or rotary element (e.g. rotary screw or vane) that draws in surroundings, which is compressed into a storage container. Naturally, since the piston or rotary element needs to move consistently and smoothly for this to work, it generally 
needs to be lubricated.
In a lubricated air compressor, there is lubricating oil which keeps the piston or rotary element running well without damaging the mechanism. The lubricant also helps to dissipate Water Lubricated Air Compressor temperature and maintain air compression efficiency.
Oil-totally free air compressors also use a piston or rotary element, but they bypass the lubrication problem by coating the compression element with a pre-lubricating materials like Teflon. Some oil-free compressors could also use water in place of oil for the lubricating and cooling procedure. These alternate materials guard the pump and allow the mechanism to go smoothly with no need for any oil-based or synthetic lubrication.