GIF and JPEG or JPG are both image compression algorithms. The idea with any compression algorithm is to get the best quality with the smallest file size.

JPG is more suited for images with a lot of color variation.
Example: photographs

GIF is better for images with large blocks of the same color, without a lot of different color variation throughout the image.
Example: cartoon/animated images

   .BMP - 324.0 KB Highest Quality Original

Here is the original image.Great quality, but a HUGE file, not even suitable for the web
(same image in GIF format, is 15KB, with the same flawless quality)


   .JPG - 34.0 KB Low Quality Compression, decent file size

Zooming in, we can really see how horrible it looks:





   .JPG - 68.9 KB Higher Quality

Here there is a little more detail, but DOUBLE the file size:




   .GIF - 14.1 KB Nearly Flawless Quality, smallest file size!

Here you can see that .GIF compression is clearly the winning choice:





I will try to add more examples, including where .jpg is more suited.

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