For most projects the preferred artwork file type is vector artwork.
There are two common file types for graphic files: Vector Graphics and Raster Graphics (also called bitmaps).
1) Vector Graphics are made from points and lines. The lines create shapes that are filled with colors, fills and gradients.
When to use vector images: text/copy of document, logos, borders, any other element of your design that does not include a photograph.
File extension types: .eps, .ai (also usually included: .indd and .pdf)
2) Raster Graphics are made from pixels. They are small dots that create the image. The main place where Raster Graphics are suggested is in photographs.
When to use raster graphics: photographs, document backgrounds, scanned items.
File extension types: .psd, .jpg, .jpeg, .gif, .tiff (can also be in .indd and .pdf)
If a raster graphic must be used the preferred file type is usually a .tiff and the dpi should be no lower than 300.
*Is is not suggested to use Photoshop for design that is text heavy.