Try some comparisons: Set teh camera to a fixed ISO - say 200 and place it on a table or tripod and do not move it.
Take a picture of the wall with a small post-it note in one corner which has the number of pixels and compression setting.
Start at 10.2 Mp and Superfine, change to Fine, then Normal. Then drop to 7Mp at Superfine, Fine and Normal and finally three more at 5Mp.
Then look at each picture on full screen and see what difference there are.
Also, try taking the 10Mp and down converting it on your PC to 0.707x pixels on width and height. Save that at Max (12) resolution and then compare it to a 5Mp image.
As others have said - always use the best you can on te camera - it is easy to shrink an image size but impossible to improve the resolution.
With my DSLR I always save in RAW+JPEG and go for a medium resolution JPEG - the reasons being that it saves a little space on the memory card (but slighty slower tosave) and is a quick and easy way to review the content or give copies to people without having to bring up either Photoshop of SlikyPix but I can create high resolution and high quality JPEGs later if I need to.
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