In 2021, the standard tool was chdman (part of MAME). Example workflow:

chdman createcd -i "game.cue" -o "game.chd"

Batch conversion was common using scripts or GUI frontends like CHDMAN GUI.
Typical steps:

Unlike "trimmed" ROMs that remove dummy data (sometimes breaking games), CHD compression is mathematically lossless. The original SHA-1 hash of the disc can be reconstructed perfectly.

In 2021, PSX users also had the PBP format (originally for PSP). Which was better?

The Verdict of 2021: For PC/Android emulation, CHD won. For hardware mods or PSP/Vita, PBP remained.