In the earlier days of computing, a committee was formed (called the Joint Photographic Experts Group) to discuss a method of distributing graphics between users on multiple platforms (ie: How can someone using a windows computer download and view a picture created on a Mac??)The standard compression algorithm that they created was named after their group, and is called the JPEG algorithm. Since Windows platforms use a standard three character extension, the "E" was dropped, and pictures compressed using this algorithm are known as .jpg files.
Jpg files were designed to preserve color information for photographic quality images. However, often times graphics (example: your sig pic) need much less than photographic quality. Additionally, jpgs were limited in that they could only support still pictures. As such, a second platform-independant compression algorithm was created.
The Graphic Interchange Format, or .gif for short, has two enhancements over the .jpg format. First, graphics preserve an enhanced look (and are not dithered... a term that means slightly blurred to reduce the file size), and graphics can also be animated. Hence all of the animated sig pics that you see are in the .gif format.
Jpg is still considered the preferred format for photograph exchange. However, with the increase in technology, and increased connection speeds, the lines of when to use each type of format have been vastly blurred (for example, I think that IceCat saves everything in .gif format, and you can't tell the difference... even in his vidcap analyses).
Other graphic formats include bitmaps (.bmp) and .tif files. These are platform dependant... ie: a mac user may not be able to open a bmp created on a Windows machine, and a Windows user will not be able to open a Mac .tif file.
As such, these file formats are typically not used on the web, and are not supported by this site.
In terms of file upload, what you should do is check the extension of your image. If it says PictureName.gif, then upload it as a gif file. If it says PictureName.jpg, then upload it as a jpg file.
As for shrinking an image, this can be done in any graphics program, like Paint (which comes free with Windows), or whatever the Mac equivalent is.
Simply download the file to your computer, open it in the appropriate program, and then shrink it (use your programs "HELP" menu if you don't know how to do this). Then, choose "Save As" and give your file a name. MAKE SURE that you're saving the file as either a gif or a jpg (jpeg) file.
Once you're done, upload the file to this site, as normal.
You never know what might be up my sleeeve...