Browsers use two types of graphic files:
Photos generally work better as JPG files while simple illustrations usually work better as GIF files. You can animate GIF files, but not JPG files. If you want part of the picture to be transparent, you will need to use a GIF file.
Programs such as Adobe's Photoshop and Corel's Draw can manipulate images and save them in the appropriate format.
As a rule you want your graphics files as small as possible so they download quicker. One way to accomplish this is to save them at a resolution of 72 dpi. It also speeds download to save the file as the size you want to display in the page rather than have the browser resize it.
