The 5 most common image formats used are JPG, BMP, GIF, PNG, and TIFF. I'll try to explain in simplest terms, their most noticeable difference and purposes they serve.
BMP
First of all, BMP is the most basic image format in Windows environment. It opens up very fast, but the main drawback is it cannot be compressed and hence the huge file size. Therefore we rarely use it on the web, never ever email your friends/colleagues BMP images!
GIF
Once popular on the web, but people are starting to replace it with PNG. It supports only 256 colors which is bad for photos. The strong point of GIF is that it supports animation. So only use it if you're making an animated image.
Such as this one..
JPG/JPEG
The most common image format used on the web. It uses compression algorithm which greatly reduce the file size (from 5mb BMP file to 150kb JPG file with minor quality loss). It is best used to compress photos without distinct lines/edges. Before sending any photos to your friends, convert them to JPG first :)
For graphs with distinct lines and edges, it's better to use PNG format instead..
PNG
Supported by all modern browsers, PNG starts to gain popularity. It utilizes 'lossless' compression algorithm means your image won't have any quality loss like JPG. However the file size is larger than JPG when compressing photos because PNG is best for images with mostly solid colors. Use PNG if you don't care about file size and wanted unquestionable best quality.
Another feature of PNG is transparent color support, means that if a website has a black background for example, the transparent part of the image will appear in black. GIF supports transparent color as well, but it has been replaced by PNG in this field.
TIFF
TIFF strengths and weaknesses are the most distinct. It is the most flexible format used by numerous image processing software, across all platforms (Windows, Mac, Unix). At the same time, it is a lossless image format just like PNG. The downside is it cannot be used in web browsers, and having file size larger than PNG and on par with BMP.
Conclusion:
For everyday photos/sharing/posting in facebook: JPG
For images consists of a few main/solid colors, with sharp edges and distinct lines: PNG
For animated images: GIF
For sharing across multiple platforms: TIFF
For storing in Windows, when you don't care about file size: BMP
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