The following information is taken from WebMonkey's Web Graphics Overview page which can be found at http://hotwired.lycos.com/webmonkey/01/28/index1a_page5.html?tw=design
The
Gift of GIF
GIF (Graphic Interchange Format) is the most common Web graphic file format.
GIF compression is 8-bit and has a maximum of 256 colors. As a general rule,
GIFs are better suited for graphics with areas of solid or flat color such as
illustrations and logos.
Other advantages to the GIF format is that it lets you create transparencies,
interlacing, and animations. A transparent GIF allows one color to be set as
transparent, usually a background color. All Web graphics are square or rectangular
and transparencies are a way to create the illusion of irregularly shaped images.
Interlaced images display a rough version of the entire image quickly and then
gradually fill in the details. This affords the viewers a sense of the image
before it fully downloads, a godsend to those with low bandwidths. Animated
GIFs are files that contain multiple images set to display like a slide show.
They work on all major browsers and require no plug-ins.
The JPEG/JPG Option
The JPEG format (Joint Photographic Experts Group) was especially designed for
images of photographic quality. JPEG compression is 24-bit, which means files
can contain up to 16.7 million colors. As a result, JPEGs are ideal for photographs,
drawings, and any image with complex or subtle color gradations. Unlike GIFs,
the standard JPEG file is not interlaced, a problem addressed by the Progressive
JPEG. However, some older browsers do not support progressive JPEGs.
PNG Pong
PNG (Portable Network Graphic) is largely considered the format of the future.
PNG compression can be 8-bit, 24-bit, or 32-bit, making it the ideal format
for almost any kind of graphic. However, many older browsers (I.E. 4 and Netscape
4 or older) do not support the format at all, and some newer versions still
have sporadic problems. Despite some well-founded skepticism, the future still
looks somewhat bright for the license free PNG.