There's been a lot of discussion regarding the horrors of the JPEG Compression Monster. However I think it's important to remember that JPEG is not an inherently lossy format. JPEG uses a formula for encoding the color data that uses 'wavelets', so to speak. [1] Imagine the top of each wave as being a point of color in the image.

In fact when you set the compression settings for saving a JPEG, you're setting the minimum size of those waves. By setting a low quality compression (a 2 or 3 setting), the waves are made larger and fewer waves are used to express the image, and the smaller the file size that results.

In the same way, setting a high quality compression (the 10 or 100 setting) uses more and smaller waves, waves that can produce more detail in the images.

Look closely at a more recent version of Photoshop and you'll see something interesting. "Now the dials here go to... 11?" [2] Once the waves are smaller than a pixel (usually the '10' or '100' setting in most export dialog boxes), then you have a lossless compression scheme! Setting your compression to 11 or 12 will make sure all the detail in an image is captured in the waves.

JPEG: The Compression Chameleon.

[1] I cannot speak to the mathematics myself. However I do comprehend the basics of the idea. http://www.wpdfd.com/editorial/wpd0199.htm#comment

[2] See "This is Spinal Tap", the movie. The DVD version includes a voice over by the band which is not to be missed.

Ross : Link : Discussion Board