Building a MJPG Camera

[vivitern]

I am working on a project that needs a custom camera capable of MJPG over WIFI with PIC32(datasheet: http://www.kynix.com/uploadfiles/pdf8798/PIC32MX110F016B-I2fML_11369.pdf). The project is a solar powered camera on a track the tracks objects walking past. The device should transmit the images back to the computer that controls the device so that it can process them and send instructions back to the device.

Unfortunately due to mounting/size constraints I am unable to just rip the sensor board out of a cheap security camera (trust me, I would if I could!). This leaves me with building my own.

I started the design phase, however I can not seem to find the parts that I need, or what those parts may be called.

From my limited understanding (note that I have no experience with image processing) The block diagram should look like this:

simulate this circuit – Schematic created using CircuitLab

My questions are as follows:

1. What should I search for when searching for a camera sensor? I was able to turn up the OVM7690, however, that was the only sensor for under $50, which tells me I am definitely searching the wrong thing. -- ("image sensors" on digikey/mouser)
2. What do I use to process the raw RGB data into a JPEG, and is there any in between steps? What is a device like this called?