The difference between vector and raster graphics is that raster graphics are composed of pixels, while vector graphics are composed of paths. A raster graphic, such as a gif or jpeg, is an array of pixels of various colors, which together form an image.
A vector graphic, such as an .eps file or Adobe Illustrator? file, is composed of paths, or lines, that are either straight or curved. The data file for a vector image contains the points where the paths start and end, how much the paths curve, and the colors that either border or fill the paths. Because vector graphics are not made of pixels, the images can be scaled to be very large without losing quality.
Raster graphics, on the other hand, become "blocky," since each pixel increases in size as the image is made larger. This is why logos and other designs are typically created in vector format -- the quality will look the same on a business card as it will on a billboard.
