The .GIF format is perfect for compressing images with large areas of the same color. It is also the only option for putting animated graphics online. (Flash is also an option, but much more costly.)
.GIF files support a maximum of 256 colors, making the format practical for almost all graphics except photographs. The most common method of reducing the size of .GIF files is to reduce the number of colors on the palette.

Transparency

The .GIF format supports transparency, allowing the background of an image to be transparent. For example, placing a transparent .GIF in a green table cell will turn the background color of the image green. In some cases of shadows a matte color may be needed to blend smoothly. (If the background is blue, use the same blue matte color as the background.)

When to use .GIF

Generally, the .GIF format should be used for logos, line drawings and icons. Do not use it for photographs or graphics that have long stretches of continuous-tone in them. When designing .GIF files, avoid using gradients and turn off anti-aliasing whenever possible to minimize the file size. Animated files with gradients or photographs will greatly increase the file size and should not be used. 30kb is our maximum file size.

Sample GIF file:

The .JPEG format is primarily intended for photographic images because it supports 16.7 million colors. Unlike the .GIF format, the internal compression algorithm of the .JPEG format actually discards information. Depending on what settings are used, the discarded data may or may not be visible to the eye. As this extra data cannot be regained once the quality of an image is lowered and the image is saved, be sure to always save the original.

When to use .JPEG

As a rule, the .JPEG format should be used on photographs and other images which require more than 256 colors. 30kb is our maximum file size.

Sample JPG file: