Extracted from I Love Photography forum on Facebook
Note that jpg (jpeg) files are 8 bit. Always. They use 8 bits for each of the three colours: R(ed), G(reen), B(lue). That provides for a greater range than the human eye can see, so if you are happy with what the camera produces when it converts the raw sensor data to a jpg file and you do not intend to do any significant post processing on the file, then jpg is fine.
However, if you do a lot of post-processing on a jpg file, you tend to get a banding effect. See http://www.photoshopessentials.com/essentials/16-bit/ for a detailed walk through of this effect using Photoshop.
Shooting RAW does slow a camera down, use more storage space (more wear and tear on a memory card) and require post processing to at least match the quality of the JPG output of most cameras BUT it does give you a little leeway in terms of correct exposure problems. Shooting both hits speed and storage again but lets you avoid post processing unless you really need it to rescue a picture (or get the very best out of that special picture).
