A typical web site is a collection of HTML files and includes image files and potentially CSS files. It is usual to want to backup this set of files into a ZIP. The other choice is to place them all within a folder and back them up individually. It also happens that someone wants to make a local copy of a Web site or part of a web site and keep them in one file. The advantage of a zip file is that everything can be in a single file including the folders and the resultant file is compressed. Using just a Z to identify the archive status allows the user to know what kind of files are in the archive.
The disadvantage is that the file will need to be unzipped before it can be used although there are some tools that will let you view and even use files within the zip without manually unzipping them. In particular an archive identified with its contents is likely to have such a tool. Even eBook readers may be able to read such a file.
 Other usages
Other formats besides HTML will often use a Z at the end of the extension to identify that the file type is inside a zip archive. For example CBZ is a comic book (collection of images) that has been placed inside a zip file. There are readers that can use this file directly. Another convention is to place the Z as the first letter of the extension. This is often done when the compression is a single file and compressed with GZIP. An example is ZABW.
Note that CHM is another format that is a compression of HTML files (It uses LZX compression). It actually stands for Compressed HtMl however it would be better to call it compiled rather than just compressed. It is used primarily for Help files in Windows.