RAW essentially saves raw data from the CCD - not a picture, but a stream of data that can be processed in various ways to produce a picture. It is the "first step" in the process of creating a digital image from the camera.

JPG actually processes that raw data to produce an image. The file is able to be opened and viewed.

For most people, JPG is the best option. The reason that RAW is used is that it allows professional photographers to take the burden of processing the CCD data from the camera and onto their PC afterwards - and as mentioned, this means they can be flexible with the way that image is processed and produced, which is not possible on the camera itself when you have it automatically convert it's images to JPGs.