You have almost certainly encountered archived files at some point—ZIP, RAR, and so on. They look like a single file, but act a lot more like a package, letting people bundle and compress multiple files and folders into a single, smaller file. 7Z files work the same way, and are particular to the popular 7-Zip compression tool.
7Z is the file extension used for an archived file created using 7-Zip, a free, open-source file compression tool. 7Z is similar to other archived formats, such as ZIP, RAR, and ISO, but uses a higher compression ratio, along with AES-256 encryption.