why does engine lack compression?

Several things: worn piston rings, holes burnt into piston heads, worn/burnt valve seats, blown head gasket, warped head, blown threads on plugs, you might also have a bad/jumped timing chain that prevents valves from opening/closing at proper times. Some of these are worst case scenarios, the most common cause is a blown head gasket.

Have you had the compression measured? If so what were the readings?