JPEG is a lossy compression method for color or grayscale images. It works best on continuous-tone images where adjacent pixels have similar colors. The JPEG standard defines several modes of operation and uses various techniques like color space transformation, discrete cosine transformation (DCT), quantization, differential pulse-code modulation, run length encoding, and Huffman coding to achieve high compression ratios while maintaining good image quality. Key aspects of the JPEG process include converting images to luminance and chrominance color space, applying DCT, quantizing coefficients, encoding DC values with DPCM, and entropy coding remaining coefficients.