Vector vs Raster

Raster images (JPEG, BMP, PNG, PSD, or TIF) consist of a grid of pixels, as in a digital photograph, and lose detail when scaled.  Vector Images (EPS, PDF, AI, or CDR) consist of lines, shapes, and other graphic components stored in a format that uses geometric formulas.  When scaled, edges remain crisp and sharp.  Below are examples of what happens to raster and vector images when enlarged.

Original Image

Raster image scaled up 500%

Vector image scaled up to 500%