All reciprocating air compressors have pistons that pump up and down to compress the air to a higher pressure, which creates friction and heat. To protect the pump, some type of lubrication is needed.
Oil-lubricated compressors are “splash” lubricated with oil. With proper maintenance, they can keep the pump running cooler and lasting much longer. Most industrial compressors are oil-lubricated. The drawback to these types of air compressors is that the oil can get into the air supply. While most tools are generally tolerant of some oil in the compressed air, there are some industries, such as semiconductor manufacturing or food handling where even one part per billion of oil is unacceptable, in which case you would have to have an oil-less compressor. They also require more maintenance as you have to add oil.
Oil-less air compressors have a Teflon lining that helps to protect the pump. The advantage of oil-less reciprocating technology is that this type of compressor is relatively efficient and produces totally oil free air. While they are also typically less expensive to purchase, their maintenance costs can be more expensive.