It can be broken down like this: A vector format image is a drawing. A bitmap format image is a photo.

How does that work out? Well, when you draw, what do you do? You draw lines, make them different thicknesses, and then color them in. But when you shoot a photo, you expose a piece of film to light, and millions of tiny grains on the film register the light, creating a grid of dots that are so close together, it looks like a photo instead of a bunch of dots.

Formats like .gif and .jpg are bitmap formats. That means that they're basically using different organizing and compressing methods to store a grid of colored dots. But vector formats like .svg and .wmf are storing sets of instructions on how to draw the picture again ("draw a blue line here, draw a red circle there").

There are advantages to each. Vector formats can generally be stretched to various sizes without losing quality, but they're terrible for photos because even a small 100 x 100 thumbnail photo has 10,000 dots in it. If you tried to define each dot as a colored circle or square, you'd get a really huge file that took forever to turn from that set of instructions back into a picture.

Bitmap formats are really easy to use for photos and are fast to display because your monitor is already just a grid of colored dots, so to display them, you're just changing the color of the dots that are already there. But if you try to stretch a bitmap, you just make all those dots in the photo bigger than the dots on your screen and the photos get fuzzy and blotchy.

If you're going to use a vector image on a web site, you generally need to convert it to a bitmap image, because web browsers handle bitmap images much better. On the other hand, you have a lot more freedom in terms of the final size of that image, because you're starting from something that's easier to stretch.

So in short:

Vector Format: Great for drawings, bad for photos, bad for the web, easy to stretch, easy to convert to bitmap.

Bitmap Format: Okay for drawings, great for photos, best for the web, hard to stretch, hard to convert to vector.

Thanks to Greg Bulmash who offers lots of clip art for his help with this entry.