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Vector vs Raster:

Vector data is common for logos and type to be made up of curves and stored as mathematically defined postscript data this allows them to be blown up considerably without loss of quality (fig a). They are referred to as being resolution independent graphic files. Software packages that create vector data include Corel Draw, Adobe Illustrator, and many more. It is important to note these packages can often embed raster data which is resolution dependent right along side the vector data which is resolution independent.

Pictures / images and in some cases logos and type can also be created and saved as raster data (fig b) which is resolution dependent. Raster data most be created and saved at the highest resolution you plan on producing your graphic at. The two images below illustrate what happens when letters saved as vector fig. A and in a raster form fig. B is enlarged 8 times. The letter defined as vectors loses no quality where as the raster letter gets all choppy as we start to see the pixels it is made of. Raster data can be saved in many formats like jpg, tif, psd, bmp, etc. Software packages that create Raster data include Adobe Photoshop, Jasc paint, Corel Photopaint, Adobe elements and many more. 
Graphic files need to be a minimum of 72 dpi at the full size the graphic will be produced. Graphics containing raster data lower than 100 dpi may appear soft or choppy. The sweet spot is to supply raster data at 125 dpi to 150 dpi anything over 150 dpi the files can get very large and resolution advantages start to diminish.

Fig. A Vector                                                     Fig. B Raster