Does this mean you have to decompress your "ISOs" when you want to watch them ? Does jellyfin support this ?

They're compressed in x265, most web browsers can decompress that natively ;) Heck, when you watch something on YouTube you are decompressing the content ont he fly

But yes, Jellyfin can also natively transcode formats on the fly if you stick a GPU in there: https://jellyfin.org/docs/general/post-install/transcoding/

Oh i thought you went 1 step further, compress all those "ISO" into 1 single blob.

Since Linux ISOs demand random access for a good user experience most of the relevant compression formats support that and so compressing as a blob wouldnt't really get you much but also not prevent individual access.