"characterized by loss," 1948, a term in electrical engineering, from loss + -y (2).
Entries linking to lossy
loss n.
Old English los "ruin, destruction," from Proto-Germanic *lausa- (from PIE root *leu- "to loosen, divide, cut apart"), with an etymological sense of "dissolution." But this seems scarcely to have survived in Middle English, and the modern word, with a weaker sense, "failure to hold, keep, or preserve what was in one's possession; failure to gain or win," probably evolved 14c. from lost, the past participle of lose.
Phrase at a loss "confused, uncertain" (1590s) is a phrase from hunting, in reference to hounds losing the scent. To cut (one's) losses is from 1885, originally in finance. The retailer's loss-leader "advertised product sold at cost or below" (to entice customers in to buy other things as well) is from 1922.
-y 2
adjective suffix, "full of or characterized by," from Old English -ig, from Proto-Germanic *-iga- (source also of Dutch, Danish, German -ig, Gothic -egs), from PIE -(i)ko-, adjectival suffix, cognate with elements in Greek -ikos, Latin -icus (see -ic). Originally added to nouns in Old English; used from 13c. with verbs, and by 15c. even with other adjectives (for example crispy). Adjectives such as hugy, vasty are artificial words that exist for the sake of poetical metrics.