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In this section, the tutorial discusses working with PNG files, emphasizing their advantages compared to GIFs and JPEGs. It highlights the PNG format as a suitable choice for the image being worked on. The speaker notes that while a JPEG didn't effectively represent the created image, a GIF offered a decent quality at 3.15 KB with 128 colors (126, to be exact). The discussion includes the dither algorithm's role in managing color separation in images, explaining how the amount of dithering can affect image size and quality. While setting the dither to 100% increases image size, reducing it to 50% results in minimal changes, demonstrating dithering's limited impact in this context.