JPEG is a commonly used method of compression for photographic images. The compression method is lossy, meaning that some visual quality is lost in the process and cannot be restored. Users of the World Wide Web may be familiar with the irregularities known as compression artifacts (commonly known as 'jaggies') that appear in JPEG images. These are due to the quantization step of the JPEG algorithm. They are especially noticeable around sharp corners between contrasting colours (text is a good example as it contains many such corners).

You can avoid this by saving unprocessed scans in a lossless format (such as TIFF or PNG, or PSD for many layers) before converting to JPEG as the final step, or saving JPEG files with a higher compression ratio. PNG's are the preferred format here, but if you do decide to convert to JPEG, Photoshop level 11~12 (95%~100%) is recommended.

(Partially copy-pasted from Wikipedia.)

Example:

Updated by lobes about 13 years ago