Raster images are made up of pixels that can be seen when zoomed in. They are suitable for editing programs like Photoshop but cannot be enlarged without losing quality. Vector images use mathematical equations to define shapes as points and connections, allowing them to be resized without losing detail. Photoshop is a raster program while Illustrator uses vectors, though both can incorporate both types. Common file formats include JPG and PNG for raster, and AI, EPS and SVG for vectors.