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When taking a picture with a digital camera the software in the camera reads the amount of light falling onto an image sensor which is located directly behind the lens and converts it into an image. The image sensor chip has millions of photosensitive diodes called photosites. The photosites are covered with red, green and blue filters. The colour and brightness of each of the millions of pixels that make up you picture is the result of the software interpreting the light falling on the sensor.
The more photosites on the sensor chip, the higher the resolution and quality of your image.
 This is a 5.1 megapixel image sensor from a Nikon compact digital camera This is the same image sensor but at a different angle. It show the light reflecting off the filters. 
  If you look very closely at a picture you have taken you will see the individual pixels that make the picture. You will need to use image editing software such as Adobe Photoshop Elements 5 (PC) for editing and printing your pictures.
If you want to know how many magapixels you need to get great photos, I would recommend anything over 4 megapixels. At the end of the day, it's what you want to do with them that counts. If you don't want to print the pictures out but just view them on your computer screen then you don't really need a large number of pixels. 1.3 Megapixels would fill an 19 inch monitor. 10 megapixel (and more) digital cameras are available. Setting the camera to this image size will eat up your memory card. Set your camera for 5, 6 or 7 megapixels and you can't go wrong.
Here is an excellent in-depth article about image sensors. |