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Forgive my ignorance: I thought it was the other way around, and you needed some relatively high amount of compression on a vinyl master, since otherwise the grooves would swing too wildly, and the needle would have a higher chance of "skipping". Is this an incorrect understanding of mine?

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Digital medium has a higher dynamic range and can be used for playback of completely uncompressed orchestral performances, but in practice it also can reliably play audio that is so compressed (maximising perceived volume) that vinyl playback of the recording would be impossible.

Pop producers went off the deep end with this trick during the loudness wars, once it became possible through CDs.

I think this is mainly dealt with by the RIAA curve which is standard across all recordings. The compression being referred to is likely the per-track compression as part of the production/mastering process.

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