Use only JPG or GIF graphics
… as these are the most web friendly.

I heard that there’s GIF87a and 89a.  What are the differences?
GIF89a allows you to do GIF animations, and interlacing.

So what’s interlacing?
Simply put, the image builds up as the end user is watching the download.  Sort of like a preview.

 
(image courtesy of webdesign.about.com)

So what about JPEG?
Well GIF8x, as good as it is, is limited to 256 colours.  JPEG, 16,777,216.  You can see why it’s popular for photos.
It does compression just like GIF, but you can select how “progressive” it is.  Look at the image below, it demonstrates the effect of more compression across the photo.

(image from wikipedia)

Lets sum it up in a table:

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