Update: Unfortunately "DMG Tool" is starting to show its age in Panther. It is slow and crashes when it is finished, even though it works. So I have found a new elegant better and free solution. As it turns out this functionality is built into OS X. You just have to know how to access it. An excellent tool called "On My Command" - a contextual menu program does this for free, It is a group of over 100 commands that is customizable (select what you want to use) that you select with a right click of your mouse. One of the commands/scripts is "Create compressed image." To use it, once easily installed, just select the desire folder, right click, and choose the command. That's it. It's done in seconds. One minor problem, it brings up a terminal screen to do it which then has to be closed. Solution: Used the included script editor (uses pull down menus) to change "Execution Mode" from "Terminal" to "Silent" - a couple of mouse clicks. Then it does it invisibly and quietly - fast and free.
The bottom line is that you do not need to spend $10 to use a tool that is already included with your OS, just because you are not Unix savvy. Others are in the Macintosh community are more compassionate and have chosen to provide you with complimentary access. As a courtesy, if you do use their tools, It would be gracious to email them a thank you for their efforts. They usually include their email address with their MacUpdate description. That way they do feel appreciated for their work.