usually the intake and exhuast ports, are smoothed out to increase flow. This can be done on a CNC machine or by hand with a rotory tool. The shops I have talked to port the exhaust, but not the intake because the intake walls are to thin. Instead, they stuff titanium valves in that have a thinner stem. Effectivly the causing the same end result.
The basic rule of thumb is, the more air/fuel you stuff in the engine, the more power you make. So, allowing more air to enter the cylinder usually increases the HP. Most guys will babble about torque dropping. Though no one can ever back that statement up with dyno data. What will usually happen is torque will stay the same, maybe see a few ft-lb increase, but HP is where the gains really show.
To answer your question about compression, the answer is no. Porting the intake and exhaust has no effect on compression. However, a lot of shops will mill the bottom of the head(s) to increase the compression at the owners request.