How I understand it, Raw is like shooting a negative, where as shooting JPEG straight from the camera is like having it automatically processed. So you take your raw file, and with the right software you adjust the light levels, and whatnot, and it doesn't mess up your photo. This takes extra time, and space on your memory card, though. If you shoot straight JPEG, you already have the photo ready for print or show, but if you need to alter it, you can actually make the picture lose some of the data it uses to make the photo (which can make it less defined). Usually this is minimal, but you should really do a "blind taste test" to see if you are okay with your image quality after modifying a JPEG, or if you would rather shoot raw and make sure you squeeze every ounce of detail out of your photo (even at the expense of it taking three times as much space on your camera sometimes).
My camera only shoots JPEGs, so I get this decision made for me. YAY! :x
So, yeah, you mess around in Raw setting, and then "lock it in" to JPEG when you are done, thereby capturing the highest detail possible. Converting to JPEG is kind of like putting the clear coat on a car, or putting the finishing sealer on your oil painting. Once you do it, you don't go back to mess with it again.
