Web browsers can render images in several formats. The most common are GIF, JPEG (or JPG) and PNG. Each has advantages and disadvantages, but they're all useful.
GIF
CompuServe introduced the GIF, or Graphics Interchange Format, way back in 1987. A GIF can only handle 256 colors, which was tons in ‘87 but isn’t very much at all today. This color limitation means it doesn't make it good for things like photographs.
GIFs are, however, good for simple graphics like logos. They can also handle transparency. Additionally, GIFs support animation, which is kind of neat, but technologies like Flash are better alternatives these days.
JPEG (or JPG)
The JPEG (Joint Photographic Experts Group) standard appeared in 1992. JPEGs are great for more complex graphics like photographs. They support lots of colors with smooth transitions between them.
On the down side, JPEG is a ‘lossy’ format. This means that, when it compresses the grahpic information for storage, some of the image data goes away forever. Each time you edit and save a JPEG, some of the image quality is lost. Unlike GIFs, JPEGs cannot handle transparency.
PNG
The PNG, or Portable Network Graphic, is the newest — and our favorite — format. It handles color as well as JPEG but doesn’t lose image quality. PNGs also support transparency, but in a more advanced way than GIFs. This format also has a great compression ratio, so PNG images are ideal for the web.