PNG vs JPEG

As a rule of thumb, use PNG for images that are made up of a few solid colors (illustrations, icons, things with fonts that need to be sharp, background patterns), and JPG for full blown images with thousands to millions of colors (photographs, patterns with gradients, etc).

Of course, if you need parts of the image to be transparent, your only option is the PNG format.

If using a PNG to create a pattern background, consider this approach.