Vector graphics are made up of vectors which define start and end points and paths between them. Vectors can form any shape and scale to different sizes without losing quality, making them flexible for business use on various materials like posters and leaflets. Raster graphics are made up of pixels recorded in bitmaps that have a fixed resolution, so resizing can cause distortion and pixilation. File formats like JPEGs are commonly used for photos but lose quality each time they are edited, while TIFFs maintain quality but are larger files. Vector formats like AI and raster formats like PSD are professional tools but have large file sizes and limited sharing abilities. Compression reduces file sizes but can lower image quality through information loss.