Digital photos are stored as files on memory cards and computer hard disks. They can be stored in different file formats (each format has a unique file extension). Most of the formats are compressed to save space and each has its own pros and cons.
The need for standard file formats
Digital photos are saved as digital files on electronic media. These digital photo files are a collection of bytes. If each manufacturer and camera would have used a proprietary file format then you would have needed proprietary software that could read, print and display those formats. Using a standard format allows any camera to save photos while any other software can read, display and print them.
What is compression and why it is needed
A digital photo is a collection of pixels ? each pixel is stored as a value that represents its color and intensity. Usually each pixel is represented by an RGB value (three numbers one byte each with values 0 to 255 representing the intensity of Red, Green and Blue that combined together create the pixel's color). An RGB value occupies 3 bytes. So how big is a digital photo file? It depends on the number of pixels in the photo. For example if you shoot a photo using an 8 mega pixels digital camera the photo will have 8000000 pixels each one occupying 3 bytes. The total file size would be 8000000*3=24000000 or 24Mbytes. This is a very big file. Big files are harder to manipulate they take a long time to send by email, they occupy large storage space and they take longer to load.
In any digital photo there is data that is either redundant or that if removed the viewer would not be able to notice the difference. In addition representing pixels as RGB values is not efficient in terms of storage space. The process of compression takes advantage of these facts. When you compress a digital photo the compression software represents pixels in a more efficient way, removes redundant data and removes data that is ?not important?. The result is a significantly smaller file. For example the above 24Mbytes file could easily be compressed to about 3Mbytes with hardly any noticeable quality degradation.
Before compressed digital photo files can be viewed or printed they need to be decompressed. Decompression is the reverse process of compression - a compressed file is converted to its original format ? usually a simple RGB pixel file. Using standard compression file formats allows one software to compress a digital photo file and another software to decompress it and process it.
Lossy or Lossless compression?
There are two main types of compression software: lossy and lossless. Here are the differences:

Lossless compression: Lossless compression means that if you take a file compress it and then decompress it ? the decompressed file would be the exact copy of the original file. With lossless compression no data is lost in the compression process ? the compression software uses better representation of the data in the file but it does not remove any data from it.

Lossy compression: Lossy compression means that if you take a file, compress it and then decompress it ? the decompressed file would be slightly different than the original one. The compression software not only represents the file's data more efficiently but it also removes data that it considers minor or not important. Such data can be removed without hardly any noticeable degradation in the file quality. The differences between the original file and the decompressed file are minor and should be negligible to the user.

Lossless compression is usually applied to text and other data where all data is equally important. For example when compressing the text in this article and later on decompressing it you would want to get the exact original article without any words or sentences dropped by the compression software that decided they were not important.
Lossy compression is usually applied to digital photos and graphic files. Such files include data that the viewer would not be able to notice if removed. For example small changes to color in a photo might not be noticeable. The decompressed file is not exactly the same as the original one but when viewing both the original and decompressed photos side by side the viewer can not tell the difference. Lossy compression software can be set to different compression levels based on how much data is allowed to be lost. At some point losing too much data is noticeable and degrades the digital photo quality. Many digital cameras allow you to set the level of compression from low to high where high compression means smaller files but less quality and low compression means bigger files but no noticeable quality degradation.
Common digital photo file formats
You can know what a digital photo file format is by checking its extension. Usually the extension is three letters representing a specific format. Here is a list of the common extensions and formats:
BMP ? Windows Bitmap: this is a basic raw format. The photo is stored as a pixel raster and is not compressed. While this format is very easy to use and is supported by practically all software it is not efficient as there is no compression applied.
GIF ? Graphics Interchange Format: An old file format initiated by CompuServe. It uses a lossless LZW compression and is thus more efficient than BMP files. GIF files are very efficient for storing basic graphics (that include lines, circles and other graphical shapes) and also efficient for storing small digital photos but are rarely used to store large digital photos as there are more efficient formats for that purpose. GIF files can also include multiple ?frames? and support basic animation.
PNG ? Portable Network Graphics: This relatively new format was designed to be used in online applications such as web pages. It uses a lossless compression. The original goal of the PNG format was to replace GIF (due to some licensing complications associated with the GIF format). PNG is commonly used now by online web sites to represent small digital photos or graphics replacing the GIF format.
JPEG ? Joint Photographic Experts Group: Also known as JPG this file format was designed by a special industry group and became an ISO standard. The design goal of the format was the efficient storage of digital photographic files. Although JPG files can support lossless compression they are almost always used in lossy compression mode. JPG files are very efficient in compressing digital photos. The JPG compression software can be set to different compression levels ? with higher compression levels the photo files can get very small but they can also get distorted. JPG files are the most common ones used by digital cameras to store compressed digital photos on memory cards and computer hard disks as they result in small file sizes and hardly any noticeable photo quality degradation.