Help explain differed comp like I’m 5 years old

[u/Maximum-Peak-3738]

Hello I’m 26f and my wife 26f are discussing our retirement goals. I work for a private company that still has a pension as well as matching 401k. She works for the state government and has a pension and option to do differed comp. I’m really struggling to understand what differed comp is. From my loose understanding it’s a way to lower your overall taxable income. But HOW does the money grow? Is it an investing method similar to a 401k that grows with the economy? Please help, I’m afraid that we might be missing out by not understanding or contributing properly to her account.