The letters "GIF" actually stand for "Graphics Interchange Format," but you don't need to remember that. What you should know is that a GIF is a compressed image file format. GIF images use a compression formula originally developed by CompuServe (which is why you see the term "CompuServe GIF" in Photoshop, for those of you that care). GIFs are based on indexed colors, which is a palette of at most 256 colors. This helps greatly reduce their file size. These compressed image files can be quickly transmitted over a network or the Internet, which is why you often see them on Web pages. GIF files are great for small icons and animated images, but they lack the color range to be used for high-quality photos.
File extension: .GIF