ABSTRACT We present results from an optical study of Compact Steep-Spectrum (CSS) radio galaxies and quasars. The distinguishing characteristic of the CSS class is that their powerful radio lobes do not extend outside the host galaxy. CSS sources resemble miniature versions of the classical double radio galaxies and quasars, but high resolution radio interferometry is required to identify the double-lobed or core-jet radio morphologies. One explanation for such intrinsically small radio structures is that CSS objects are youthful sources which have not had time to expand into classical double radio sources. Alternatively, CSS objects might be of a normal age yet still compact due to confinement through strong interaction with the interstellar medium. Extensive radio investigations have yielded insights into the nature of CSS sources, but this is the first comprehensive optical study. Using the KPNO 2.1-m and 4-m telescopes we obtained broad band images and both low and high dispersion spectra for a sample of 19 CSS sources. We find that the CSS sources in our sample have similar optical characteristics and conclude that the CSS classification is physically meaningful, rather than being a collection of objects which appear to be compact for various unrelated reasons. Our optical data (Gelderman & Whittle 1994, ApJS, 91, 491) support a picture in which the CSS radio sources are interacting with the optical line emitting gas; although we are unable to distinguish between the normal expansion of a young source and a source which is contained by an exceptionally dense NLR. The most dramatic aspect of the spectra is that as a class, the CSS sources have remarkably broad, structured [O III] profiles with kinematics which are distinct from all other classes of AGN. Such exceptional velocity structure is presumably due to acceleration of the ambient gas by the powerful jets and lobes. The CSS objects in our sample may be typified as extremely luminous, high excitation line emission sources. As a class they have greater [O III] flux and equivalent width than other classes of AGN. Unexpectedly, we find little relation between the enhanced line emission and the powerful subgalactic radio source. The data from our CSS sample fall along the established correlation between line luminosity and total radio power. If the high NLR luminosities are due to ionization related to the radio structure then one might expect CSS sources would have greater line luminosity at a given radio power than other radio galaxies or quasars. Furthermore, we are unable to identify emission line flux ratios which might indicate that the radio jet plays a direct role in the ionization. Instead, photoionization by the active nucleus and a high covering factor in the NLR can explain the luminous, high equivalent width, high excitation line emission. From our imaging program we conclude that galaxy-galaxy interactions, as indicated by disturbed hosts and/or nearby companions, are suggested for every member of our CSS sample. Such interactions are important for other classes of radio-loud AGN and it is not surprising that they should be an important aspect of the CSS phenomenon. However, we are unable to determine any link to the other notable properties of CSS sources which might allow us to favor either explanation as to why CSS have such powerful yet compact radio structure.