Sorry for the pun in the title, but I've noticed that there's a lot of confusion over file formats and resolution. Let's see if I can help clear things up:
First, think of your camera's sensor as a grid with millions of tiny squares on it. Each square records the color that it sees when you take a picture, and all of them together make up the photo itself. This isn't abstract -it's really how digital cameras work. In fact, the "resolution" of your full-size photos will tell you how many tiny squares your sensor has.
My 30D, for instance, produces photos that are 3504x2336 at full size. This means that the sensor has a grid that's got 3504 squares on one side and 2336 tiny squares on the other. And if you multiply the two numbers together you get 8,185,344 tiny squares total, which we usually divide by 1 million and call "megapixels". So, the number megapixels a camera has is directly related to the number of tiny squares on the sensor, all of which describe what is known as the camera's "resolution" or how much detail it can capture in a given scene.
So, on with file formats:
On your camera you probably have some or all of the following choices:
* RAW: This format records exactly what each and every one of those millions of tiny squares on your camera sees. You get every scrap of detail in the scene with nothing lost. The downside, as you may imagine is space. These files can be VERY big and fill up your card fast! You'll also need to convert them to jpeg at some point before you can upload them to the internet for viewing or before prints can be made from them. This format is best for people who intend to do a lot of manipulation in software where the extra data is necessary.
* High/Medium/Low Resolution jpeg: Now that we know that "resolution" means the number of tiny squares, this becomes more obvious. These settings effect how large the photo is, and it usually gives you the size in pixels: 1600x1200, 1024x768, 800x600, etc. The smaller the photo, the lower the resolution, and the less memory on your card that it takes up. The downside is that you loose detail in smaller sized images and if it comes out really good you may not able to print it at large sizes like 8x10. An easy rule of thumb about resolution vs printing sizes is to just divide the resolution by 100. In other words, 1600x1200 would print to 16x12, 1024x768 would print to about 8x10, and 800x600 would print at about 6x4.
* High (Fine) /Medium (Normal)/Low Quality (Basic) jpeg: The quality rating allows you to get smaller images by allowing the camera to compress the image more than it otherwise would. On Medium or Low you'll be more likely to see rough, blocky looking edges to the details in your photos. I'd recommend shooting on "High" or "Fine" at all times. This is a really bad way to save space on your card.
Coming Soon: More about jpeg's, compression, and their effects on your photos.