Digital cameras store images in a compressed format called JPEG. JPEG is the most commonly used file format. Some cameras also have uncompressed formats (TIFF and RAW). [Digital camera file formats]
When images are compressed their file size becomes smaller so more can be stored on a memory card. However, if compression is set too high, image quality degrades.
Low compression = better image quality
For optimal image quality, select your cameras least compression and highest resolution (highest number of megapixels) settings. Digital cameras provide a variety of compression levels: Super Fine, Fine, Normal and Basic. The terms vary among manufacturers. The Fine or equivalent setting produces the least compression and best image quality.
If you intend to print and crop images, use the least compression. But if you only plan to post images on the web, or send via email, using a higher compression is okay. Do keep in mind that you may decide later to print a photo, so it’s a good habit to use the highest quality settings most of the time.
An image can be reduced in size with image quality visually in tact. This is rarely the case if an image needs to be enlarged.
The size, or resolution, of an image can be changed in a digital cameras.
Resolution relates to the size an image appears on a computer monitor, not the physical dimensions an image prints. For example, the available resolutions on a ten megapixel digital camera can be 3646 x 2736 pixels (10 MB) to 640 x 480 pixels (.3MB) and even smaller, with a number of different resolutions to pick from in between.
You may mix compression and image sizes on memory cards.