If you plug the exhaust whilst the engine is running the backpressure into the carb from the tank will increase. This will force more fuel into the engine, causing it to stall. This is one of the most common (and best IMO) methods of stopping the engine in a car.
You can also prime an engine for starting by using the same method. You plug the stinger of the exhaust with a finger and pull the pullstart (or turn the rorostart) a few times, forcing fuel into the engine.
It has nothing to do with engine compression (except that more fuel wil be forced into the engine, reducing the compressible space) whatsoever. All it affects is backpressure, which in turn affects how the engine runs.