These words, known as kennings, are common in all the early Germanic languages, so we find them in poetry written in cognate languages such as Old Norse as well as in Anglo-Saxon texts. Some kennings are used for literary effect, to emphasize alliteration or to engender a memorable image in the mind of the listener. The use of kennings would also help the poet remember and recite his poetry. However, use of kennings in Anglo-Saxon was so common that many terms, like "whale-road" as you mention, seem likely to have been common parlance, not limited to poetry.
The use of kennings tells us a lot about Anglo-Saxon society. A kenning indicates, often, the defining feature of a thing in the minds of the Anglo-Saxons. So, when a lord is often referred to as a maþþumgyfa , or gift-giver, we can see that the giving of gifts was one of the...
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primary roles such a person would hold in society. Our modern word "lord," indeed, descends from the Anglo-Saxonhlaford, itself a kenning which means "bread-storer," or the one who provides. Our modern "lady" descends from another illustrative kenning: hlǣfdīge, literally "bread-kneader." These kennings give an idea of the roles of lords and ladies. Modern "husband" comes from the Old Norse common kenning husbondi, which literally means the owner or chief inhabitant of a house, "hus."
As you can see, then, the use of kennings was so second-nature to the Anglo-Saxons that we have inherited many of their coinages and still use them today.
The compound adjectives are called "kennings." They are used as metaphor to add to the elevated language that makes up a literary epic. They serve to add description without bulk, and frankly, they're just fun poetic devices.
Part of the reason for the use of kennings is the way the Anglo-Saxon language developed. New words incorporated to the language from other cultures made some for some grammatical comedy and plenty of confusion. It makes sense--the Germanic base of the language didn't blend easily with the romance languages of French and Latin. Noun and adjective placement is inconsistent, and until a true set of new "rules" developed, strange combinations helped clarify illustrations and images.
Kennings also served the poetic process, in allowing the oral tradition to preserve the story through alliteration and meter. Because the "scop" had to retain the information, the artistic form helped aid in memory.