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The code that the LZW algorithm outputs can be of any arbitrary length, but it must have more bits in it than a single character. The first 256 codes (when using eight bit characters) are by default assigned to the standard character set. The remaining codes are assigned to strings as the algorithm proceeds. The sample program runs as shown with 12 bit codes. This means codes 0-255 refer to individual bytes, while codes 256-4095 refer to substrings.
Compression
The LZW compression algorithm in its simplest form is shown in Figure 1. A quick examination of the algorithm shows that LZW is always trying to output codes for strings that are already known. And each time a new code is output, a new string is added to the string table.