What he said.
Also, don't think of a RAW file as an image. Because, really, it's not. Think of it as a digital negative. When you capture a RAW file, it is generally all of the pertinent data captured by each sensor for Red, Blue, and Green. Your camera can show you a picture in the LCD, but it's really just a jpg interpretation of that data.
As already stated above, the biggest boon with RAW is that your camera does no processing on the data after it is captured. All of the processing is left up to you when you open the file in editing software.
Why RAW? It allows non-destructive editing. You can make adjustments to white balance afterwards and not lose color data. You can make adjustments to your exposure and other settings without losing data, except any data that gets clipped off either end of the shadows/highlights. You can choose any color profile without having to worry about data loss due to conversion. A Raw file is 16-bits which allows billions of color possibilities for each pixel, as opposed to an 8-bit jpg which allows around 16.7 million.
Once you edit your RAW file, you convert it to another format, usually JPG (you can make it into an 8-bit or 16-bit JPG) but you can choose another format such as TIFF or PNG. Also, you don't really edit a RAW file. The original file is never altered, just the meta data that describes how the image should be adjusted. So you never lose that original data and you can make as many images from that data as you choose. Sometimes you can repair an image or add depth by creating a number of JPGs with different settings and combining them selectively in Photoshop.
Professionals seem to divide over the issue of shooting RAW. It adds another step to your workflow, because it takes time to convert your RAW to another format. If you are getting everything right the first time and you don't think that mankind will evolve and technology will improve and no one will print your images beyond tomorrow, then shoot JPG. If you want to capture everything that your camera can handle, have the ability to manipulate that data for multiple purposes, and make edits with minimal data loss, then shoot RAW.
I photograph weddings and thats means I have to shoot alot of low-light situations. RAW files give me more color data to work with when I remove noise and the finished product is usually higher quality than if I had shot JPG. However, shooting JPG is not a crime and you should not feel dirty.
Another big question that arises when you choose to shoot RAW is what software should I use? There are a few choices for this. Each vendor's product will generate slightly different results with your RAW file. One group of people with Camera A prefer Product A while others swear Product B makes their pictures look so much better. It comes down to preference, really. The company that makes your camera usually has some RAW software of their own. Photoshop has Adobe Camera RAW plugin. Capture One is a good choice. Some people use things like RAWShooter or SilkyPix. Adobe has Lightroom that is just released or about to be (it uses Adobe's Camera Raw settings).
There are alot of choices for editing RAW. One thing about Adobe Camera Raw that I think makes it stand out is its ability to "recover" data. Each pixel in RGB has three values. One for red, another for blue, and another for green. If any of these channels drops to zero or above the max value (255 for an 8-bit image), then you get black shadows or white highlights. Adobe Camera Raw, when you adjust the settings, tries to calculate the missing channels for pixels with only one or two channels of data. It is subtle, but it can give slightly more detail for blownout whites. Usually, you can make one normal JPG, then make a second one where the whites are adjusted better, then layer them together in Photoshop. I don't think Adobe Camera Raw makes my images look as good as Capture One does, even after trying to calibrate. But I do really like this feature of Adobe Camera Raw.
I hope this sets you in the right direction. RAWR!!!