The Digital Cinema Picture Track File is defined in SMPTE ST 429-3 Sound and Picture Track File. The standard defines a constrained application of SMPTE ST 390-2011 MXF Pattern “OP-Atom”, requires compliance with SMPTE ST 379 MXF Generic Container, and requires compliance with SMPTE ST 377 MXF File Format Specification.
The Picture Track File is compressed using JPEG 2000. The JPEG 2000 profile for digital cinema is defined in ISO-IEC 15444-1. JPEG 2000 employs a Discrete Wavelet Transform for compression. Each frame is compressed independently of other frames, a technique known as intraframe compression. JPEG 2000 is scalable in nature, where each compressed frame carries multiple resolutions of the image. Importantly, it is the multiple resolution feature of JPEG 2000 that allows a 4K or 2K image to be extracted from a single Picture Track File.
In practice, picture data from post production is converted to a series of still image frames using the Tagged Image Format File (TIFF), as constrained in SMPTE ST 429-4 DCP MXF JPEG 2000 Application.
Those seeking more information on the compression algorithm will find substantial resources on the web describing the Discrete Wavelet Transform and JPEG 2000.