When working with digital fabrication tools such as laser cutters, CNC machines and vinyl cutters, it is important to understand the difference between raster and vector graphics.
A raster image is made of tiny squares called pixels. Photos, screenshots, JPEGs (.jpg) PNGs (.png) and BITMAP (.bmp) are all raster images. Raster graphics are good for showing appearance and detail, but if you enlarge them too much, they become blurry or blocky.
A vector image is different. Instead of being made of pixels, it is made from paths defined by points, lines, curves, and shapes. In simple terms, a vector file gives the computer drawing instructions, such as where a line starts and ends, how a curve bends, or how large a circle should be. Because of this, vector graphics stay sharp at any size.
For digital fabrication machines need clear, precise paths to follow. Vector drawings provide these clean, accurate paths. Raster images usually do not, because they only describe an image as pixels.
For most cutting and toolpath-based fabrication work, vector graphics are the standard because they are precise, scalable, and machine-readable. Raster images are still useful in some cases - such as engraving pictures on the laser - but generally they are not suitable for clean cutting paths.
Vector is best for drawing, cutting, and machine toolpaths. Raster is best for photos.