Yeah, I remember it. It's an accelerating web proxy. Opera offers one, too.
And one can even set a compressing proxy at home. What's the difference between "Data saver" and such proxies?
Google's closely follows a lot of stuff that their PageSpeed Module does. On-the-fly HTML/JS/CSS optimization, image conversion to WebP, etc. I don't know if they've extended it beyond that to other areas like recompressing videos (which I believe Opera's service does).
Worth noting that a variant of it has been available in Chrome's mobile browser for awhile now, and there was an unofficial version for the desktop called Data Compression Proxy which was essentially a little hack to run the desktop browser through the mobile service.
As for benefits: If under a pretty strict data cap where you're often touching the limit, it gives a lot of extra breathing room (easily comparable to the savings from an ad blocker). You wouldn't believe how unoptimized a lot of sites are. As a side benefit, if you're on dial-up, connecting through slow fixed wireless in a rural area, are using a poor cell data connection, etc (basically any time you're in a situation where pages are taking 5-10 seconds to load), it actually speeds things up quite a bit. Of course, if you're on true high speed, it'll probably slow things down more often than not since their proxy's going to add at least *some* latency, plus the additional hops if you're not lucky enough to get a nearby cached copy.
In regards to the suggestion of "setting a compressing proxy at home", assuming for the moment that the home isn't where you're having problems with a data cap, sure. But it's going to take a lot of code to match the depth of stuff that either Google's or Opera's services do. Then again, you'd retain a little more privacy. And with your own root certs you could MITM yourself on SSL sites and get the bandwidth savings there too. I suppose it just depends on how much time you have and how badly you want/need it.