GIF vs JPEG
The two primary types of graphics files supported by all web browsers are GIF and JPEG. Both can do a good job of representing graphics, but each has its own strengths and weaknesses.
GIFs are ideal for graphics
GIF or Graphics Interchange Format is the older of the two. GIF is most useful for images which do not have a complex color range. GIF can only support up to 256 possible colors in any image. GIF also supports some interesting effects: animation and specific colors can be made transparent, allowing the background to show through. GIF is a "Lossless" compression method. That means that it doesn't degrade the quality of the image when the file size is compressed. It achieves smaller files through losing color information. This would severely limit its use for photographs.
JPEGs are ideal for photographs
JPEG is a result of the efforts of the Joint Photographers Experimental Group. It is a format designed from the ground up for photographs. JPEG is what is known as a "LOSSY" compression. This means that information is thrown away as the amount of compression is increased.
Overlap and File Size
Where there is a bit of overlap is "photorealistic" images such as 3d models produced by high end packages such as 3D Studio Max or SoftImage and paintings which use a vast range of colors and subtleties. In this situation, you'll find that JPEG works better. It's a good idea to try both when in doubt and compare the two. Which ever format you choose, keep in mind that a larger file requires a longer load time. For example, try not to use pictures imported directly from your digital camera. You should first re-size these photos using an image software program.