There are different types of graphic files.

The most common graphic file in windows used to be a *.BMP file (bitmap). This is what your desktop (clouds) are made of.
The Internet uses only *GIF and *JPG files.

They all look pretty much the same on your monitor. And they all consist of little pixels. If you magnify these pictures enough, you can see the single colored blocks that the graphic is made of. This is the way the computer stores the information: single blocks in single colors.

Same graphics can have a different file size!

If you would have less blocks, the picture would take less space! Your eye would hardly notice, but a magnification of the picture would look blurry really quickly:

 
4KB   96 DPI             2KB     40 DPI

The little blocks (or dots) are measured in DPI's (Dots per Inch).

What is the purpose of your graphic?

For printing nice photos, you would like to have 300-1200 DPI resolution. It would take a lot more space though! But with a large hard drive, you are more concerned with quality than with space.

For the Internet, 96 DPI is just fine, because your monitor is working on the same level. When downloading web pages, the size of the graphics is very important for the speed, so 300 DPI is just a waste of space.

A picture of 300 DPI has 3X more pixels from the left to the right, and 3 times more pixels from top to bottom, than a graphic with 100 DPI. This means that the file is going to be 9 times as big!!

100DPI            300 DPI        900 DPI