Five RAW Reasons

#1 Flexibility
Flexibility in terms of post-processing, multiple conversions, i.e. shot in black & white but want to still have the color version, color space changes (Adobe RGB, etc). Most common flexibility is the white-balance is adjustable post-shot.

#2 High-bit depth = High-dynamic range
With 12-bits of color information (the latest Canon’s have 14-bits for even better image quality), a raw image contains 4,096 shades of a particular color versus JPEG’s 8-bit or 256-shades. Considering that the tones are not distributed evenly, the following table may be a better explanation to show why shooting JPEG is throwing away a lot of image information that can never be retrieved.

5 Stops 128 2,048 Highlights
4 Stops 64 1,024 Three quarter tones
3 Stops 32 512 Mid tones
2 Stops 16 256 Quarter tones
1 Stops 16 256 Shadows

#3 Tonal curve
The step of applying the tonal curve gives the photographer shooting raw some advantages. One advantage has to do with the shape of the tonal curve. When converting images in a raw converter, the photographer has a choice of two types of conversions (linear and nonlinear). The most commonly used conversion type is a nonlinear conversion. With this type of conversion, the raw converter applies the tonal curve during the conversion. However, most raw converters give the photographer a choice of several different tonal curves.

#4 Posterization
This has to do with the limited bit-depth of JPEG images. Further processing could force these shades even farther apart or can leave some of the shades empty creating gaps between adjacent colors. In some cases, this can become visible to the eye in the form of posterization. When posterization occurs, the human eye can detect the change from one color to another. This results in a loss of detail and banding. This is most noticeable in areas of little detail. For instance, featureless skies may show banding of colors. Posterization is much less of a problem with raw images because the increased number of shades causes the shades to be much closer together.

#5 Sharpening
Conventional wisdom holds that sharpening should be one of the last steps performed on an image. This is so because other process steps can decrease the sharpness of the image. If an image is sharpened and then edited, the sharpening may be decreased during the editing. Also, since sharpening adds a certain amount of image degradation, it is not a good idea to sharpen multiple times (there are exceptions to this, but you have to know what you are doing; the exceptions will not be dealt with in this article). This is not a problem for raw. Raw files are not sharpened in the camera. As a result, it is up to the photographer to determine the best point at which to sharpen the file (e.g., in the raw converter or at any point during image editing).