Small summary
It can be jpg, gif or png but
GIF and PNG are the best for icons and pictures with a few colors (limited to 256 colors). Small texts stay clear to read and you can create sharp images (with transparency if needed).
JPG uses another type of compression and you'll loose the quality of the image. Only recommended for photos and pictures with lots of colors. Don't compress the photo under 70-80% (best to stay at 85-90 %).
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