User blog comment:Sactage/Technical Update: August 28, 2012/@comment-1636-20120829073421/@comment-13301-20120829161135

While JPG format introduces a few loss on the image quality, it's configurable how much loss is accepted to preserve a decent quality and still give a great compression ratio. Wikia thumbnailer program is configured to create a very low quality thumbnails for JPG images, so I advice you to upload PNG images instead of JPG, because when they're put on an article on a smaller size, JPG images get a very poor quality, while PNG images have no loss of quality.