Contributor(s): Mark Ferrara, David Germano
Digital images come in different formats, both in terms of how the camera produces them, and in terms of formats used for delivery over the Web.
Most commercial cameras take pictures in JPEG format. JPEG compresses photos, and thus degrades the quality. Professional and semi-professional cameras take pictures in different flavors of RAW format, which is uncompressed and thus of higher quality. Older cameras at times also provide an option for storing TIFF images.
At present, the vast majority of Web sites use JPEG as the digital format for image delivery. There patent issues raised about JPEG, but these have been settled conclusively - see http://en.wikipedia.org/wiki/JPEG#Potential_patent_issues.
PNG (Portable Network Graphics) is a newer digital image format that is excellent for its image quality due to its lossless compression technology. However, it is up to 50% bigger in file size than JPEG, so can be problematic if you are catering to a broad range of users. In addition, there are support issues in older browsers, including some issues with the pervasive IE 6. For these reasons, they are still not used commonly outside of use for high quality images. Its does however have a great use for transparency - it does with any color, and from any degree of 1% to 100%. On the horizon is a new image format MNG that is an animated extension PNG that has the transparency qualtiy, is great image quality, and facillitates animation
The GIF format is usually used only for images that literally only have limited colors like rudimentary graphic images. It does a great job of compressing and makes a great file size, but it is limited to 256 colors which don't allow for the shading effects you need for photographs. GIF does transparency, but only as clear (100%). In contrast, JPEG and PNG support any color you throw at them.
TIFF are only used for archiving images, and are too large for use in delivery.
RAW images come in different flavors depending on the manufacturer of the camera taking pictures. RAW files are really useful because they aren't compressed and they come with considerable metadata that can be manipulated further in a tool like Photoshop. In fact Photoshop is the best tool for importing RAW files whether they come from Canon or Nikon due to native import ability in the most recent versions of the software.
See http://www.cybercom.net/~dcoffin/dcraw/, or http://en.wikipedia.org/wiki/Dcraw, a project aimed at enabling people to deal with the various RAW formats.
Canon and the other camera makers also often provide free downloadable software from their support sites.