There are two key types of image format used on the Web, these are loss-less type such as PNG and lossy types such as JPEG. The general rule of thumb is that lossy types produce smaller, lower quality, files whereas loss-less produce better images but larger file sizes.

Image Credit: Google Code

WebP is a lossy type that is similar in some ways to JPEG however Google tell us the compression mechanisms used for WebP (based on the open source VP8 codec) can produce more efficient, and much smaller, image files. When internet bandwidth is an issue smaller image files can make a huge difference on perceived performance.

One of the hurdles that Google is currently trying to overcome, in order for WebP to be accepted as a common format, is making it a native format in web browsers. A future release of Google Chrome will include native support however there is no news as yet as to whether other browsers such as IE, Firefox, and Opera will support the WebP format.

Google have a conversion tool (currently Linux only) that will allow your to convert your JPEG files to WebP, and a viewer is also available (which converts your WebP files to the loss-less PNG format) so you can make your own assessment of quality.

Learn more about Google WebP at Google Code: WebP and a comparative study of WebP against JPEG, PNG, and GIF can be found at Google Code: Comparative Study of WebP, JPEG and JPEG 2000.