Image Quality
Most digital cameras give you choices as to how the sensor records the information it receives when you take a picture.
JPEG vs RAW files
JPG (large-fine): these are normal digital camera images. Use this setting. Cameras create JPG images from raw image sensor data. This raw data disappears as soon as the JPG image is recorded. With JPG (large-fine) you shoot high quality images which are immediately ready for viewing with no further processing.
Raw: These files are simply sensor data. This data isn’t a picture you can actually see until it is processed further in a computer. You’ll have to process each file individually before you will be able to see it as a photograph!
Why I Shoot Raw: Two Minute Tips Video
Raw vs Jpeg Examples from Adorama Digital Photography
Editors Note: Many Photographers do choose to keep the RAW data as you have more options available to you before the images are compressed. When you start with a RAW you can do more photo editing without degrading the photo.
Saving in Formats like PSD after opening a raw file will preserve the edits you make whereas you loose a lot of that compressing a JPG File.