There are many different image file formats that can be used for sprites. There are lots of advantages and disadvantages to each file format. A popular format is PNG:
The PNG file format is ideal for sprites. It supports millions of colours, which means your sprites can be full of colour and life. PNG uses loseless compression which means when you save your image it will compress it without losing quality (unlike the JPG format which uses lossy compression). Another advantage of PNG is its ability to use transparency. This is extremely important if you want to blend your sprite with the background. This also prevents harsh and ugly edges appearing on your sprites.
However, PNG does have a disadvantage that it doesn't support animation. The MNG format was originally developed iin 2001 as a successor to PNG, which supported animation, however this format failed to catch on. To get around the lack of animation support, we can instead use PNG strips for our sprites, and have all the frames of a sprite appear side by side in a single image.