Your camera will be able to save the images you shoot in some or all of the following formats: JPEG BASIC, JPEG NORMAL, JPEG FINE, TIFF, RAW. Some camera manufactures have additional options, some of which are proprietary.
JPEG (Joint Photographic Experts Group) is by far the most popular format used. JPEG is an 8 bit RGB (Red, Green, Blue; true color/16.6 million color) file that can be opened by most applications including web browsers. JPEG is a lossy, variable compression image format. The rule of thumb here is more compression = more loss = less quality. The most popular JPEG options are 1:16 (JPEG BASIC), 1:8 (JPEG NORMAL), and 1:4 (JPEG FINE).
TIFF (Tag Image File Format) is a generic, lossless, 8 bit, RGB image format. This format will create files larger than the JPEG options.
RAW (sometimes called source data or atomic data) is an image file that has not been processed for use. It is a 16 bit color file. This setting creates large files that require extra time for your camera to save after you shoot. A RAW photo is magical in that you can modify your settings for exposure, color, and contrast on your computer, without loss, AFTER you take the photo! (Note: you can modify the exposure, color, and contrast of any (8 bit) photo on your computer after you take it but any change is a lossy degradation of the image. The file may look better but the improvement causes dropout losses that result is varying degrees of posterization of your picture.)
The JPEG FINE setting has the best balance of quality, size, and storage speed for most picture taking situations.
Next we look at the file size option. Basically all cameras have a maximum file size (resolution) which is the physical count of the number of pixels on the imaging sensor chip. It is designated by the megapixel specification (width in pixels x height in pixels = magapixel camera resolution) of the camera (2.4, 3.1 4, 5, 8, etc.). The camera settings allow a variety of choices from this maximum resolution down to VGA (640x480 pixels). Since you can always reduce your image size without loss afterwards it makes sense to leave your file size set to maximum all the time.
The choice of JPEG FINE at maximum resolution combined with setting the correct exposure, color, and contrast will result in a technically good photograph from your camera that should please you.
Exposure, color, and contrast settings will be covered later.