JPGs are suited for photographs or other high color images because of the following reasons

Original JPG (3838 bytes). Consider this 100%

82% quality of the original (3184 bytes)

60% quality of the original (2310 bytes)

51% quality of the original (1981 bytes)
Note that pixelation starts to appear and is perceptible near the 'crown' because this area has some sharp color changes.

40% quality of the original (1569 bytes)

20% quality of the original (783 bytes)
For details on why GIF format should not be used for photographs, refer the section on When to use gifs.
The JPG algorithm does not do justice to images with sharp edges such as text, cartoons, line-art etc. You should choose the GIF file format for such images. For further details, refer When to use gifs. For further details, refer When to use Gifs and JPGs and Using JPG and Gif in a single image.
Also, JPG does not support color transparency and animation. You might have to use the GIF format if you want these features.
Having said that, I have a interesting tip on how to make animated JPGs using a little JavaScript. It's more like displaying a series of JPG images quickly at a particular place than actual animated JPG creation!
Page contents: JPG compression algorithm tutorial: JPGs are suited best and should be used for photographs and other high color images.
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