PNG is a bitmap image format that allows for image compression and transfer on the web without a significant loss of data. It's very similar to GIF (Graphics Interchange Format) and was developed as an alternative to the aforementioned in the late 1980's.
The beauty of a PNG file is that it supports transparency within an image. So does GIF, but PNG goes even farther and allows for partially transparent values (think see through color spaces). This aspect is quite appealing when it comes to clip art and digital design elements. Having a transparent background and transparency within an image allows the user to overlap and layer elements within a design. This is especially important to designers working with publishing/photo software that does not support vector files (i.e. Microsoft Publisher, Photoshop, Invitation Software, etc.)
Although PNG files have been around for about 15 years many people don't know what they are and routinely request JPEG versions of my clip art.
JPEG (Joint Photographic Experts Group) is a file format developed by the Joint Photographic Experts Group (hence the name) as a bitmap compression format for photographic images. It's the preferred file format for storing and transporting photo images but it has some limitations when it comes to clip art. The biggest drawback is that JPEG does not support transparency. That poses a problem for designers trying to create a layout with colored backgrounds or trying to layer one image on top of another. That annoying white box is always surrounding the element. It's not the JPEGs fault...it just wasn't designed for clip art!
I think the biggest fear of PNG files is that people aren't sure how to use them and if their software will support them. The good news is that you use PNG files the same way you would JPEGs. If you normally click "File", "Insert" and select a JPEG to put into your design you would do the same thing with the PNG version. Also, most software (unless you're using something pre-1995...in which case you might want to consider upgrading) will support PNG. If Microsoft Word can use it, chances are your software can too.
So give it a try, chances are you'll love it.
Here's a look at the difference between JPEG and PNG: