TechDygest for the iPhone is probably one of the most useful news reading apps you’ve never heard of.

True to its name, TechDygest offers you a steady stream of tech news from multiple sources — but the real genius is its ability to compress separate stories into a short summary that’s perfect for mobile reading.

As if by magic, TechDygest (available free on the iTunes Store) also manages to retain most key points to a story, even while compressing some the text in several stories by as much as 95 percent. While it may seem like a threat to traditional tech news spots like this very site, I see TechDygest as yet another useful tool for news junkies. That’s why we’ve selected it for VentureBeat’s Mobile App Spotlight, where we highlight new and interesting apps.

TechDygest is broken up into two major news sections: a top 10 collection of the hottest news, and a longer thread of the latest news. The news is constantly updated, and since TechDygest’s summaries are so tiny, stories are also available for reading offline. You can also share the compressed versions of stories with friends, which ingeniously links to TechDygest’s Posterous blog.

It may sound like TechDygest is making a business of stealing and editing other people’s work, but that’s not the case at all. The app annotates every compressed blurb with a footnote of where the original text came from, and it also links to those stories as well. I’ve found that I follow those links often, and since I’ve gathered the basic gist of the story from TechDygest, I’m also more prepared to look for the additional bits of information a full news story offers.

Here’s how Dygest co-founder Alain Mayer described the app’s magical summarization engine:

Summarization is a bit like how you learned analyzing text in grade school. Identify the actors and the actions in a paragraph. If you identify the same actors or actions in paragraphs of different articles, they become a good candidate to be included in the summary. This is done algorithmically via NLP (Natural Language Processing).

The same engine powers Dygest’s other iPhone apps, iDygest (Apple news), CelebDygest, and GameDygest. The technology is based on NLP algorithms from Columbia University researchers that Mayer came across while studying there. Mayer tells me that the company is looking to develop Android versions of its Dygest applications next.

After launching on February 11, TechDygest managed to get over 240,000 downloads as of last week. That’s a respectable number for a newly launched app, and it’s clear that there’s definitely something compelling about the app engine that Dygest has developed.

Want to have your mobile app featured like TechDygest? Then submit to our Mobile App Spotlight!

The Intel AppUp developer program is sponsoring VentureBeat’s Mobile App Spotlight. However, VentureBeat’s editorial staff selects apps for the program according to its customary editorial standards, without input from Intel.