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In game development, the format of images is crucial. JPEG is a common image format found on the internet, developed by a collaborative group in the early days of the internet, known for its efficient compression. Conversely, PNG is another format that, while not as compact as JPEG, supports transparency, making it useful for images requiring see-through areas. JPEG's advantages lie in better size optimization, but it does not accommodate transparent pixels, leading to the guideline that non-transparent images are typically saved as JPEGs.