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This file format, sometimes seen as JPG, is the default of most cameras, and for good reason. It's fast, both to process on the camera and on the computer, and the files are relatively small, allowing you to fit more files both on your camera and online when it comes time to share your shots. It's nearly universal, making sharing these photos incredibly easy. JPEG is simply more convenient for casual shooting.
The major disadvantage comes into play with the process by which JPEG's are derived: file compression, leading to what is aptly named JPEG artifacts. In the compression process, some of the data of the image is thrown away. While this isn't a problem if you're doing relatively little editing of the photo, especially if you tend to make white balance and exposure adjustments before shooting the image, it can be if you tend to do heavy processing work. So, if your shooting style involves less post-exposure tweaking, JPEG will probably do you just fine.
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First, to clear a common misconception: RAW does not provide inherently better quality. Professional photographers, when presented with printed versions of RAW and JPEG photographs, often cannot even tell the difference!
However, RAW does provide you with a more “pure" version of what the image sensor originally detected when the photo was shot, which makes it easier to edit later on with less possible degradation of the image. Thus, if you're planning on doing high levels of editing, for instance for HDR photography or photo manipulation purposes, RAW is probably the better format.
RAW files are also much larger than JPEG, which becomes problematic with photographers who tend to be very shutter happy, go long periods of time without downloading their pictures (such as while traveling), or simply do not have a large memory card. This can be alleviated somewhat by carrying extra memory cards, though this requires significant investment and organization.
A serious disadvantage of RAW is that it is a proprietary format, that is, individual to the camera vendor. For the user, this means that not only can you not easily exchange RAW files with other people, but you also need special software installed to first read and then process the file. While this doesn't particularly discriminate against any one type of user, it is a nuisance for many.
This has been somewhat alleviated with increasing use of the DNG file format, essentially a universalized version of the RAW format that you can convert to. However, many cameras, particularly those by Canon and Nikon, do not natively support DNG, which somewhat undermines its convenience. Keep in mind also that RAW converters are continually getting better, so that issues of time and convenience are becoming less and less so.
Because they require so much extra processing, they take longer to shoot, and are slower to work with on your computer if speed is an issue. Thus, using them for action shots, especially at higher resolutions, generally doesn't work too well except on the more high end cameras.
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JPEG and RAW: The Best of Both Worlds
You don't have to just use one or the other for any individual shot, however. Many cameras allow you to shoot in both, which gives you both a convenient JPG for sharing and small edits, and a RAW file for deep tweaks. After all, you may not necessarily know what you'll be using the photograph when you're actually taking it; it's good to keep your options open.
This in itself has some difficulties, primarily in that it takes much more extra processing time as you're shooting, which slows the whole photography process down somewhat for users without high end cameras. This problem becomes exponential when it comes to larger file formats. Still, this may be the optimal solution for many photographers.
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For More Information
For more on using RAW and JPEG in conjunction, check out this article.
For more information, check out this excellent article on how different image formats work; the comments are especially interesting for those interested in the nuances of different cameras with regards to file formats.