Why is piping 'dd' through gzip so much faster than a direct copy?

dd by default uses a very small block size -- 512 bytes (!!). That is, a lot of small reads and writes. It seems that dd, used naively in your first example, was generating a great number of network packets with a very small payload, thus reducing throughput.

On the other hand, gzip is smart enough to do I/O with larger buffers. That is, a smaller number of big writes over the network.

Can you try dd again with a larger bs= parameter and see if it works better this time?

Bit late to this but might I add...

In an interview I was once asked what would be the quickest possible method for cloning bit-for-bit data and of coarse responded with the use of dd or dc3dd (DoD funded). The interviewer confirmed that piping dd to dd is more efficient, as this simply permits simultaneous Read/Write or in programmer terms stdin/stdout, thus ultimatly doubling write speeds and halfing transfer time.

dc3dd verb=on if=/media/backup.img | dc3dd of=/dev/sdb