Images are the #1 best method of attracting readers on the World Wide Web. The Internet is impractical for real-time transmission of audio and video. Text does not immediately grab an audience raised on television. Images fill the gap. Web readers come for pictures and stay if the writing is good.
Images on the Web can look better than on a magazine page.
Photographic prints have a contrast range of about 100 to 1. That is, the most reflective portion of the print (whitest highlight) reflects 100 times more light than the darkest portion (blackest shadow). It is simply not possible to make one sheet of paper that has reflective properties more varied than this. Magazine pages are generally even worse than photographic prints in this regard. Highlights are not very white and shadows are not very black.
Slides have at several times the contrast range of a print. That's because they work by blocking the transmission of light. If the slide is very clear, the light source comes through almost undimmed. In portions of the slide that are nearly black, the light source is obscured.
Computer monitors are closer to slides than prints in their ability to represent contrast. Shadows correspond to portions of the monitor where the phosphors are turned off. Consequently, any light that comes from these areas is just room light reflected off the glass face of the monitor. In a dimly lit room, it is easy to get a 256 to 1 contrast ratio.
Obviously, if you are like 99% of the people publishing on the Web none of this will do you any good. You'll start by slapping a photo down on a flatbed scanner and then you'll never get the full range of tones that was present in the original negative or slide. But if you use PhotoCD or some other form of negative or slide scanner then you have a chance of achieving Web greatness.
The principal limitations on image quality over the Web are imposed by slow communication lines and small monitors. Images larger than 768x1000 will take too long to transmit to modem users and may be viewed in full on only a small percentage of today's monitors.
In general, in-line images should be 24-bit color JPEGs for photographs and GIFs with as few bits/pixel as possible for line art or anything similar (e.g., maps). B&W images may be used for aesthetic reasons, but they are only 10% smaller than color JPEGs.
The Bandwidth Conservation Society has some interesting things to say on this topic.
I publish a set of tips for converting PhotoCD images to JPEG (both with PhotoShop and with free Unix shell tools that can do 100 at a time).
Netscape changed the rules as usual by introducing WIDTH and HEIGHT tags for in-line IMGs. Smart browsers can load and present all of the text, leaving appropriately-sized holes for the images that will be loaded later. Try out one of my Costa Rica pages in Netscape 1.1 to see how this works.
If you like, you can present pages that speak for themselves, with photos taking up almost the entire screen. However, adding WIDTH and HEIGHT tags to every IMG on your server is a major headache. Fortunately, there are programs that do this automatically; my favorite is wwwimagesize.
Netscape has written some more on this subject.