This is another question that have been a popular photo topic of late. For some cameras you don't have a choice, but with many DSLRs you have at least a choice between RAW, JPEG or both. Some allow saving in TIFF format as well.
First of all, lets talk about these three file formats.
RAW is the image produced by the camera's sensors and converted to a digital format from the analog signals recorded by the sensor. RAW is typically a proprietary format of the camera's manufacturer. Each manufacturer provides software for your computer that will convert their RAW images to another image format. From there, you can typically save them as JPEG, TIFF or whatever you require.
JPEG is a lossy compression format. The camera produces a JPEG after additional processing for white balance, contrast, sharpness, color space (such as sRGB or AdobeRGB), etc. If you don't do post-processing on the image, JPEG is often a good choice, and it saves memory card and disk space. Extensive post processing can result in degraded image quality when the file is re-saved as JPEG each time.
TIFF uses a lot of storage space. It is processed like a JPEG except a TIFF image is not compressed. Therefore it is valuable for use in post-processing, just as the RAW file is.
RAW preserves all of the information captured by your camera's sensor. This allows you to correct such things as white balance in post processing. If you only save to JPEG, accurate post processing is impossible.
Personally I save as RAW only, since all other formats can be created from RAW with no loss in quality. This is particularly useful in post processing. Photoshop, for example, can open a RAW image as a smart object. This helps prevent destructive editing. If you make mistakes, you can always revert to the original image.
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