Here is the main information from a very interesting article about raster and vector images.
There are two main type of image files: Raster and Vector. Raster images are created with pixel-based programs or captured with a camera or scanner. They are more common in general such as jpg, gif, png, and are widely used on the web. Vector graphics are created with vector software and are common for images that will be applied onto a physical product. Also used in CAD, engineering, and 3D graphics.
When using a raster program you paint an image and it’s similar to dipping a brush in paint and painting. You can blend colors to soften the transition from one color to another.
When using a vector program you draw the outline of shapes: and it’s similar to creating an image with tiles of all different shapes and sizes. e.g. an eye shape, a nose shape, a lip shape. These shapes called objects display one single color each.
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