Include support for ZLIB compressed file systems

configname: CONFIG_SQUASHFS_ZLIB

Linux Kernel Configuration
└─>File systems
└─>Miscellaneous filesystems
└─>Include support for ZLIB compressed file systems
In linux kernel since version 3.1 (release Date: 2011-10-24)  
ZLIB compression is the standard compression used by Squashfs
file systems. It offers a good trade-off between compression
achieved and the amount of CPU time and memory necessary to
compress and decompress.

If unsure, say Y.