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It enables shorter traces between the CPU and memory chips which allows for higher speeds compared to the traditional SO-DIMM form factor. And the compression is physical (the socket works like modern LGA CPU sockets).

Compression describes how it is physically attached. Similar to desktop CPUs, LPCAMM maintains contact with the mobo via screws that apply a consistent pressure to the module, ensuring a completely solid connection.

There is no preceding form factor that LPCAMM2 will replace. It's the first standardized removable module for LPDDR. Prior to this, LPDDR has only been usable in soldered-down packages.

Emphasis on 'standardized' -- the 2 in LPCAMM2 is indeed meant to refer to the second generation of LPCAMM, but it's the first generation that has been approved as a JEDEC standard (and therefore, the first one that most people will be able to buy).

Was the original CAMM from Dell ever used with LPDDR, or just DDR5?

LPCAMM2 = Low Power Compression Attached Memory Module 2

So the compression in this case is physical.