First of all, do you understand what is a jpeg file? JPEG is an acronym for Joint Photographic Expert Group. It was created by photographers who needed to send digital files across but at compressed level. Useful if your files are very big. File compressions are classified into 2 types. Lossy and Lossless. Lossy compression compresses files for storage, but when reopened certain details may be gone. In lossless compression, files are saved and reopened without any loss in quality.
Jpeg uses lossy compression algorithym. In Photoshop, one can choose from different ranges of compression values to determine whether maximum compression and minimum quality is a prefered choice, or maximum quality and minimum compression is.
In your G3, you too are given 3 options to choose from. If you choose SUPERFINE, your files will get the most minimal compression possible so that you get maximum quality. At FINE, the files saved will be balanced for compression ratios and quality. With NORM, camera will save the files at maximum compression resulting in alot of loss in picture quality.
You will also realise that the memory card stores lesser images than NORM when you set it to SUPERFINE. Which setting you choose depends upon yourself.
I hope that answers your questions.
Andy Ho