This image, with it's mixed lighting, would have been tough to shoot if the camera was set to record JPEG.
At some point when you are honing your photography skills, you'll ask yourself: is it time to get RAW?
You may have already stumbled upon this menu option sometime when you were out shooting, but maybe were afraid to admit, you just have no clue what it does. You're not alone. You might know that, yes, it is the highest quality your SLR or point and shoot camera can produce, but how is it different from the JPEG file we all know and love. More to the point: should you even care?
Yes and no.
RAW does in fact give you the best quality file your camera can produce. It isn't larger, but it is the raw data that your sensor captures, without any processing of the file whatsoever. This means you can adjust a lot of options later on like exposure, white balance, contrast, shadow detail and colour saturation all the while working with millions of more colours then are possible in a compressed file like a JPEG.
When you shoot a JPEG with your camera, after each click your cameras built in computer is actually processing the file for you, locking in things like exposure, sharpening and white balance. Yes you can adjust these things later in your computer with photo editing software, but not to the same degree that you can with a RAW file. A lot of things are already "baked in" and can't be changed like they can on an unprocessed image.
JPEG is also a compressed file by nature, popular in digital cameras (especially in the early days, like 4 years ago!) for the amount of photos that you could squeeze on a then expensive digital memory card. It makes the file smaller by stripping out a lot of the fine detail and colour depth, which you probably wouldn't notice unless you really compared a JPEG and RAW file side by side on the screen.
So if RAW is so gosh darned good them, why doesn't everyone shoot it? Why is not the default format when you buy a camera? As a mentor of mine used to say:
RAW should stand for: Really A lot of Work
Since the camera is not processing the file for you, as in a JPEG, it is assuming that you the photographer will be doing all of that work. Rarely can you just show someone a RAW file on your screen and have them go "wow". First you have to run it through specialized photo editing software that can handle RAW formats such as Photoshop Elements or my favourite, Adobe Photoshop Lightroom. These programs allow you to work on RAW photo formats and adjust basic properties like contrast, sharpening etc.
Another minus for shooting RAW is the sheer size of the file, which is generally 4 to 5 times the size of a JPEG. This makes it hard to send and share with people (that's assuming they even have the software to VIEW it). Shooting RAW eats up your card space quickly, especially if you are used to shooting in burst modes.
In short JPEGs do a great job of shooting and not using up a lot of space on your camera, being a great flexible format that you can share quickly with fiends and family, although it provides you with a lot less information. A RAW file becomes the perfect companion to the photographer who wants the most control with processing and the best detail they can pull from their camera.