CHD file format is commonly used to convert/compress GDI as well as PSX and PS2 games (among other things). CHDs can be used with emulators also, and subsequently converted back into ISO/GDI form later if need be. To answer your first question: yes.
Anyhow, you can get latest chdman exe from official MAME package; just need that one tiny exe. Put it in a folder with 'CHDMAN Compress & Extract Menu.bat' (google search takes you to it, on launchbox forum) for a nice GUI with easy to understand options.
CHD format saves a ton of space. It's a great archival and practical format in one, kinda like wbfs.