If you select JPEG, you're letting the camera apply a series of adjustments to your shot automatically at the point of capture. These settings include white balance, sharpening and colour saturation, so as soon as you load them onto your computer, they're ready to be printed or uploaded with minimal to no image editing at all.
Raw files, on the other hand, are exactly what the name suggests - they're completely unmanipulated files that haven't had any of those adjustments that are applied to a JPEG file. Think of them as a digital negative, if you will.
But why shoot Raw when all the hard work is already done for you in a JPEG file? Well, Raw files contain much more information, allowing you to control exposure and colour to a much greater degree. Highlight and shadow detail can be recovered that would otherwise be lost with a JPEG, while white balance issues are easily corrected.
Though Raw files do require you to make these adjustments afterwards on a computer via Raw Conversion software (often bundled with your camera, while Photoshop and Elements also feature a Raw converter), the final image will look much better than a JPEG straight from the camera. JPEGs have their place though - they're great for sharing instantly with friends and family.
If you're torn between shooting either JPEG or Raw, most cameras offer a dual shooting mode, allowing you to shoot both JPEG and Raw simultaneously.
