Compression test vs. Leakdown test - what's the difference?

A compresion test is done by removing one spark plug, putting a gauge in the spark plug hole and turning the engine a few times over to see what the maximum compression is that the engine will develop using the movement of the pistons to generate the pressure. This test is repeated for each cylinder to ensure that the readings are accurate.  This test will tell nothing about whether or not you are eligible for a new block.

A leakdown test places a gauge in the spark plug hole with the piston at top dead center without moving. The combustion chamber is then pressurized with air from an outside source.

With the regulator air pressure as the standard, the test measures the % of the pressure _drop_ through a particular orifice that results from whatever flowrate leaks out the cylinder being tested. The air flow passes from the regulator through the orifice on its way to the cylinder, and as long as the leakage flowrate out of the cylinder stabilizes, the pressure drop through the orifice will stabilize, regardless of how long you run the test. If air pressure is supplied to the leakdown tester at 100 psi, and the leakage out the cylinders is a stable flowrate through the tester that causes 16 psi of pressure drop through the orifice, the tester reads either 84 psi or 16% leakdown, depending upon how the dial on the second pressure gauge is marked.

As with a compression test, the leak down test is repeated for each cylinder. Again, a new engine may lose 5% to 8% on a leakdown test.