Back before digital cameras, photographers weren't finished after just taking the photo. The image was developed, fine tuned and perfected in the dark room, and each photographer did their developing a little differently, depending on the result they wanted. In a digital camera, a JPEG file is automatically processed, but a RAW file isn't—giving the photographer a little more freedom in the digital darkroom, i.e. post processing with Photoshop or another editing software.
What is RAW?
Think of a RAW file as a digital negative. A RAW file hasn't been processed yet, so it leaves more of the processing up to the photographer, creating more options for fine tuning. A RAW file isn't ready to be shared right away, but is used when the photographer intends to edit the shot.
RAW files contain more data, so you can do things with them that you can't otherwise accomplish with a JPEG. RAW isn't available from every camera, but most advanced cameras offer this feature.
Why Use RAW?
RAW offers more control over the post processing of an image. With an image shot in RAW, you can adjust the white balance if it wasn't shot right the first time, for example. Exposure is easily adjusted in a RAW file, and sharpness can be controlled more as well. With more data inside a RAW file, you gain more flexibility over what you can and cannot do in post processing.
RAW Vs. JPEG
While RAW is an excellent tool, it's not always the best format to shoot in. RAW files are large, so they take up a lot of space on the memory card and on your computer. Because RAW files are larger, they also slow the camera down—some cameras maintain the same burst speed but can't take as many right in a row while others can take the same amount of images but at a slower rate.
For this reason, RAW isn't often used in sports and action photography. RAW also must be edited before it can be shared on the internet or opened with most photo viewers, so it's not for quick uploads either. But for shots that will be edited, it's the best way to go. If you aren't sure, you can always shoot in RAW + JPEG mode and your camera will save both file types of each image.
How to Shoot in RAW
Shooting in RAW is actually quite simple. In the camera menu, select image quality. Select RAW (or RAW + Normal to end up with both file types). If you can't find these options in your menu, consult your user's manual (and make sure your camera is equipped with RAW).
Once you've told the camera you want RAW files, shoot just as you normally word. While it's easier to edit RAW files, it's still best to get the shot as accurate as you can before editing, just like when you shoot with JPEG.
How to Edit RAW Files
To edit RAW files, you will need a photo editor, but many different types of editing software offer RAW processing. The CD that came with your camera, if your camera shoots RAW, may have a program that will work. Photoshop and Lightroom are the most popular choices among professionals, but more budget-friendly options like Photoshop Elements and Paintshop Pro also offer RAW editing. There's even a few free options, like Picassa.
The process to editing RAW files will be different depending on which program you use. When editing RAW, you'll be taken to a separate window that allows for adjustments to exposure, white balance, sharpness and more. In Photoshop, for example, the first tab contains the most popular adjustments, but there's also additional options for adjusting sharpness and more in the remaining tabs.
If you are familiar with photography basics, editing a RAW file is simple because the adjustments are for basic principles like exposure, white balance and sharpness. Open a RAW file and try out the different options. Explore all the tabs in your program and try out the different options, or look for tutorials specific to your software, since all programs have slight variations.
If you are having trouble opening RAW files, your camera may be newer than your software. Download a conversion program and you'll be able to change the file type so they're compatible with your software. (I use Adobe DNG Converter to convert to a Photoshop 5.1 compatible file).
RAW files offer much more control over the editing process. If you frequently fine tune your images, you'll want a camera that's capable of shooting RAW, but if you don't do much editing (and don't plan to either), then it isn't a feature you'll need in your digital camera. For those that frequently perfect their images through software, RAW is often the best option.