What is the JPEG graphics file format?

JPEG (pronounced "jay-peg") is a standardized image compression mechanism. JPEG stands for Joint Photographic Experts Group, the original name of the committee that wrote the standard. JPEG compresses either full-color or grayscale images and works best with photographs and artwork.

JPEG uses a lossy compression method, meaning that the decompressed image isn't quite the same as the one you started with. (There are lossless image compression algorithms, but JPEG achieves much greater compression than is possible with lossless methods.) This method fools the eye by using the fact that people perceive small color changes less accurately than small changes in brightness.

JPEG was developed for two reasons: it makes image files smaller and it stores 24-bit per pixel color data (full color) instead of 8-bit per pixel data. Making image files smaller is important for storing and transmitting files. Being able to compress a 2MB full-color file down to, for example, 100KB makes a big difference in disk space and transmission time. JPEG can easily provide 20:1 compression of full-color data. (With GIF images, the size ratio is usually more like 4:1.)

This information is based on the JPEG FAQ, which is available at:
http://www.faqs.org/faqs/jpeg-faq/