Terminology
Some terms you should be familiar with are:
RGB - red-green-blue additive color model
Pixels and color depth - to control the color of each pixel on a screen, the operating system dedicates a small amount of memory to each pixel. This can be referred to as VRAM or Video Random Access Memory. When 8 bits of memory are dedicated to each pixel, each pixel could be one of 256 colors (256 = 2 to the eighth power.)
Browser Safe colors - This is a solution devised by Netscape to solve the problem of color graphics displaying differently on different operating systems. 40 of these colors are used for displaying graphic interface elements, which leaves 216 colors to display everything else.
Dithering - Full color photographs offer an almost infinite range of colors. Dithering is the process of juxtaposing pixels of two colors to create the illusion that a third color is present. Dithering reduces the overall sharpness of an image and can create a grainy pattern in the image.
Screen resolution - Refers to the number of pixels a screen can display within a given area. Images for Web pages are always limited by the resolution of the computer screen. Most personal computers displays have resolutions that vary from 72 to 96 pixels per inch (ppi).
Gamma - Refers to the degree of contrast between midlevel gray values of an image. In PhotoShop, use the "Levels" control to change the gamma settings. When Portable Network Graphics (pngs) become more popular, the problem of differing gamma values between computers will be resolved.
Graphics and Network Bandwidth - At 28.8 kilobits per second (kbps), the actual download rate is about 3.6 kilobytes (KB) per second (8 bits make a byte). That means a graphic using 36 KB will take about ten seconds (or longer) to download.
GIF - Graphic Interchange Format popularized by CompuServe. It is less efficient at compressing complicated pictures with many colors and textures.
Interlaced GIF - the gif graphic downloads one line of pixels at a time. Interlacing is best for larger GIF images such as illustrations and photographs. It is a poor choice for smaller GIF graphics like icons and buttons.
JPEG - Joint Photographic Experts Group are full color images (24 bit or true color) that use a complex mathematical technique to compress the image. It discards unnecessary data and is thus called a "lossy" compression technique.
PNG - Portable Network Graphic is a new image format developed by a consortium of graphic software developers. They are designed specifically for Web pages and when support is more complete, will become the standard.
Lossy/Lossless - Lossy means that the compression used on your graphic is reduced by discarding information. Lossless means that the reduced file size is created without discarding information. Traditionally, JPEGs are lossy compression method and GIFs are lossless method.
Anti-aliasing - A term to describe the edges of your graphic and how they will appear. An anti-aliased edge is made up of colors that blend into an adjoining color. They will look less pixilated (jagged.) On small type, you would probably choose alias, since it would be more readable.