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Line art, with sharp edges and plain colours are better dealt with PNG.
Photographs, paintings, etc. can be very efficiently (and without too serious artifacts) compressed by JPG.
Unfortunately, most covers are a mixture: photograph or painting with sharp-edged letters on top. So one often has to decide between a too large PNG or a JPG with blurry letters.
Create the cover with your favourite program (Photoshop, Gimp...). Save it in its native format (it should be lossless, and you keep all layering etc., useful if you want to modify it later). Save it in JPG and PNG. Open both files and decide which one to use, based on what you see and their size.
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