Images allow you to give your pages some visual interest, although the first users of the Web (scientists and engineers, mostly) assumed that the grahics would be things like graphs and charts.
You can only use certain formats for Web images: GIF, JPEG, and PNG. GIF and PNG images should be used for drawings and other images that use "flat" color. They're smaller and more compressed than JPEGs, and you need to be aware of the size of your images. JPEGs were developed by the Joint Photographics Experts Groupd exclusively for photographs; their algorithm was developed to deal with photographs' "graduated" color.