JP and Joe are both correct. Ideally a compression test is done at normal cranking speed on a warm engine with the throttle fully open. If the test reveals there may be a problem a "wet" test is sometimes done. This involves squirting some oil into the cylinders to help the rings seal and repeating the test. This test is of limited value on a flat engine, since the oil will run to the bottom of the cylinder. A better test is a cylinder leakdown test. The piston is brought to TDC and compressed air is put in though the spark plug hole. A pair of gauges on the tester indicates the psi going in and how much the cylinder retains. From this you calculate the percentage of leakage. During the leakdown test you get a good idea of where the problem is, you can hear the air escaping through the valves or into the crankcase. Under the right conditions Shawn's compression numbers would be low with too much variation between cylinders.
It's quite possible (and sometimes exciting)to run an engine out of the car. It's easier with a carbed motor, FI is a bit more involved. Plan on the motor moving around, especially when you rev. it and keep a fire extinguisher handy.
