The Pitfalls of JPEG Compression
Most mid- to low-range digital cameras save images to the storage card in JPEG format. This is a compressed file format that permanently, irreversibly loses quality each time the image is saved--that's why it is often called a "lossy" format.
JPEG compression makes your file sizes small, so you can fit more pictures on your digital storage card. That's a good thing--using reasonable levels of compression can significantly reduce file size without noticeably reducing the image quality. But, I'm sure you've heard the saying, "too much of a good thing can be bad."
There are various levels of JPEG compression. High compression produces lower quality and smaller files. Lower compression equals higher quality and higher file sizes.
Many new digital camera owners will set their camera to use the highest file compression in order to fit more images on their digital memory card. Try to avoid this temptation. Digital memory is cheap compared to the value of your pictures.
The quality lost from compression can not be restored--ever--so if you later decide to edit your already over-compressed photos (even just to crop them), the quality is further reduced. You can tell if your images have been over-compressed by zooming in on them in a photo editor and looking for "JPEG artifacts." These are areas with a blocky appearance such as what you can see in the example at the top of this page. Don't check for JPEG over-compression in an image viewer, because they usually do interpolated zoom that will not show you the pixels accurately.
Most cameras will give you a quality option to set varying levels of compression. Check your camera manual for this option, and remember higher quality means larger files, more compression means smaller files. For instance, I have a Canon camera that offers normal, fine, and superfine compression levels and a Nikon camera that offers basic, normal, fine, and high (this setting produces an uncompressed TIFF) quality settings. For most, the middle setting usually offers a good compromise between quality and size. If you tend to do a lot of post processing in a photo editor, use the highest quality setting. Avoid using the lowest quality setting if at all possible--you can always compress more later after the originals have been safely archived.