http://www.jpeg.org/ is the official home for JPEG, a graphical file format that incorporates lossy still image compression.
The Img package supports this format.
The GWImage widget supports this format.
The name comes from the name of the group that developed the format: the Joint Photographic Experts Group. It is extremely well suited to compression of real-world images, though if you intend to do substantial manipulation you are better off using a non-lossy compression scheme instead (such as is found in the TIFF format with the right options.)
Greyscale images are compressible (AIUI) in a lossless fashion as JPEG images; I think this is using a different algorithm and you might need to select the correct algorithm when doing the compression (though some utilities will scan the image first to see if this is possible.)
