A RAW image is basically a negative ( if you like ) of a digital photo before it is developed and contains everything the camera saw at the moment the picture was taken. In ( development ) of a digital photo some details are lost, the RAW negative retains 100% of detail.
Just to complicate things a bit more, here is my 2pennorth !
It is worth noting that a RAW file contains the details of every pixel seen by the sensor, which is why the file is so large. Also, RAW is not an industry standard like JPG, TIFF etc are, all camera manufacturers have their own variants which are handled by 'plug ins' to the various image processing programmes.
All the other file types are processed to a greater or lesser extent in the camera before being written to the memory card, which means the files are compressed. For example, a large area of blue sky will be recorded in JPG format as the colour of one pixel, together with a dimensional element telling the programme how many pixels around it are the same colour.
The biggest advantage of RAW is that where there are blown highlights, they are recoverable, whereas in any other format they are not, and you can do so much more and be more creative in RAW than in other formats.
Take a look at some photo mags, or look on the net, try googling for a Canadian guy called Larry Bolsch, he has an excellent site for explaining all sorts of digi-pic things in a way that non experts can understand.
Thanks for the comments, Sounds just a tad complicated, but interesting I will give Raw a try, perhaps not for the holiday snaps though, At roughly 10mb a shot; it does look like Bens comments are spot on, I just need to invest in more SD cards and Paracetamol , and probably more drive space, problem is I only asked the Mrs for a camera??????
Even if you don't use RAW, you may consider shooting with it along with JPEG, if your camera offers this dual shooting option. You can recover both highlights and shadow information, correct white balance or other color cast problems and change the color profile, say from SRGB to Adobe RGB.
Now you can of course do all these with JPEG, but since RAW files are pre-assemble images, all the sensor data is there. Because of this, you will have more latitude to make all the above changes and there will be less degradation to the image if you really start tweaking stuff like exposure and color info. And that becomes really important when you are later printing images--especially when making enlargements, where you may be taking a file to its resolution limit for a given print size.
In a general sense, thinking of RAW files as film negatives is probably an apt comparison. You may never use the film negs you have, but they are there if you later want to make adjustments and or enlargements for future prints.
I used to shot Joint Raw/Jpg and the used an ordinar viewer to pick which image I was going to teekup in the raw format, I've now stopped shooting both as doing them together it eats up your memory cards.
Raw is the Best format as it is 100% where as Jpg's tiff's etc are all a compressed version.
I shoot what I want then pick the best and save that to an external drive as a backup then I delete the Rubbish.
If you need to do more than trim or rotate a digital camera picture then there must be something wrong with the camera.
If you're doing fancy things like morphing or changing colours or adding stuff that ain't there or printing the picture to display on the side of a house then you need RAW otherwise JPG is good for everything.
I did some samples once showing the negligable differences to the naked eye but I appear to have deleted them. I couldn't tell the difference unless I had them enlarged to pixel level. Even on various levels of JPG compression.