You need to use the tar command as follows (syntax of tar command):

tar -zcvf archive-name.tar.gz directory-name

Where,

1. -z : Compress archive using gzip program in Linux or Unix
2. -c : Create archive on Linux
3. -v : Verbose i.e display progress while creating archive
4. -f : Archive File name

For example, say you have a directory called /home/jerry/prog and you would like to compress this directory then you can type tar command as follows:

tar -zcvf prog-1-jan-2005.tar.gz /home/jerry/prog

Above command will create an archive file called prog-1-jan-2005.tar.gz in current directory. If you wish to restore your archive then you need to use the following command (it will extract all files in current directory):

tar -zxvf prog-1-jan-2005.tar.gz

Where,

1. -x: Extract files from given archive

If you wish to extract files in particular directory, for example in /tmp then you need to use the following command:

tar -zxvf prog-1-jan-2005.tar.gz -C /tmp
cd /tmp
ls -

Compress an entire directory to a single file
To compress directory named /home/vivek/bin/ in to a /tmp/bin-backup.tar.gz type the tar command on Linux:

tar -zcvf /tmp/bin-backup.tar.gz /home/vivek/bin/

You can compress multiple directories too:

tar -zcvf my-compressed.tar.gz /path/to/dir1/ /path/to/dir2/

A note about non gnu/tar command/
The above syntax use GNU tar command for compressing and uncompressing tar files. If your system does not use GNU tar, you can still create a compressed tar file, via the following syntax:

tar -cvf - file1 file2 dir3 | gzip > archive.tar.gz

How to use bzip2 compression instead of gzip compression
The syntax is:

tar -jcvf my-compressed.tar.bz2 /path/to/dir1/

Where,

1. -j : Compress archive using bzip2 program in Linux or Unix
2. -c : Make archive on Linux
3. -v : Verbose output
4. -f my-compressed.tar.bz2 : Store archive in my-compressed.tar.bz2 file