The quality of a digital camera is mainly defined by four quantities: resolution, lens aperture, lens zoom range, lens quality, and software. CCD sensitivity also varies somewhat.
Nearly all digital cameras use CCD's as the sensing element. This is what takes the place of film. The resolution is the number of pixels in the captured image. Computer images are divided into little dots called pixels. The more pixels, the more detailed the image can be. Here is a guide to choosing resolution, estimating the size print you can make from each:
Casual photographers are satisfied with bigger prints from each size, while those who like to look at 8x10's from a distance of three inches think I am being too generous in the above evaluations.
The aperture of a lens is its maximum opening. The bigger the aperture, the more light is gathered, and the less light you need to take a good photo. This is the most overlooked lens specification, but it very important, especially if you like to take photos indoors without flash or from a reasonable distance.
Lens aperture is measured in f/numbers, such as f/2.0 or f/3.5. An aperture of f/2.0 literally means that the lens opening is half the focal length of the lens. Thus, smaller numbers mean bigger lens openings. You would rather have a lens that is f/2.0 than a lens that is f/4.0.
I really like have a fast (large aperture) lens. It means I can shoot photos indoors without flash, and these look a lot more natural than flash photos. You can also take a lot of photos less obtrusively without a flash. Digital photographers tend to shoot a lot of photos, and you can drive people nuts if you shoot 20 flash photos in ten minutes. They will hardly notice your shooting these twenty shots with flash disabled, and you will get much better candids.
So, what is a good aperture? I would not buy a camera with a slower lens than f/2.8. My favorites at the time of this writing (and this will get dated fast) are the C3040Z and C4040Z, with f/1.8 lenses. I might put up with a slightly slower lens (but not slower than f/2.8) to get smaller size if pocketablity was important, or to get an extreme zoom lens.
A zoom lens has a variable focal length. The focal length determines the magnification of the lens. A short focal length is a wide-angle lens, great for taking in large vistas. A long focal length is a telephoto lens, allowing you to get a tight photo of a distant object or person. A zoom lens lets you combine both of these and everything in between into a single adjustable lens. If a camera has a 3X zoom, it means that the longest focal length is 3 times the shortest.
In the subsequent discussion I am using 35-mm equivalent focal lengths.
Most digital cameras have a 3X zoom, with a focal length range from around 35 mm to 105 mm. 35 mm is a modest wide angle, and 105 mm is a modest telephoto. A few cameras have extreme zoom ranges of 8X or 10X. These generally have about the same minimum focal length of around 35mm, but these usually have a much longer maximum focal length.
Long focal lengths mean you can get a tight photo of your children's faces, or a shot on the soccer field where you child is actually recognizable. Extreme focal lengths let you get in real close to the action even from the sidelines of a soccer field.
(Important: ignore "digital zoom" specifications in ads. Only pay attention to optical zoom. Digital zoom is of no value. All it does is crop the image in the camera. You can always crop an image in software after you have transferred it to your computer, and you have more freedom at this time.)
Long focal lengths present problems for photographers. It is hard to hold a camera sufficiently stable at a focal length of 300 mm. Bright sunlight helps, and a tripod or monopod can do wonders. A few cameras with extreme zooms have a stabilized lens, that compensates for camera shake. Good stabilization can make a remarkable difference in sharpness of handheld shots at extreme focal lengths.
If I were buying at the time of this writing, I would have trouble choosing between a camera with a 3X zoom and a fast lens such as the Olympus C4040Z and a camera with a 10X stabilized zoom such as the Olympus C2100, which is generally a smaller aperture.
Lenses with the same focal length and aperture can differ substantially in quality. A poor lens is not as sharp, and it may exhibit chromatic aberration, which means that all colors are not brought to the same focus. This usually shows up as colored fringes at high contrast edges.
Unlike aperture and zoom range, you cannot read the lens quality of the camera box. The two best approaches to getting a good lens are (1) read reviews, and (2) stick with reputable camera companies. I tend to trust camera companies such as Olympus, Nikon, and Canon more than electronics companies such as HP who only moved into cameras with the advent of digital photography. I think it is easier of a camera manufacturer to incorporate good electronics than for a camera company to incorporate good optics.
Here I am not talking about photo software that comes with your computer, but rather the software built into the camera. Taking a digital photo means a fair amount of computation. When you snap a digital photo, the camera first grabs a "pre-photo" to determine the brightness and color balance of the scene. It then shoots the real picture, based on the earlier information.
This is an important calculation. The importance of brightness is obvious. Less obvious is how radically the colors of different light sources are. Slide photographers no this. If you shoot standard "daylight" film indoors under incandescent lights, everything is orange. Film photographers see less of a problem, because the processing labs that print our photos correct for most of these color shifts. With digital photography, you want the camera to do all of this color compensation for you. This is not easy, since the camera needs to distinguish between incandescent illumination and a daylight scene with a lot of red and orange colors.
The good news is that some cameras do a remarkable job, giving you better color rendition than you have ever seen short of expensive custom work by custom photo labs. My own sense is that Olympus does the best, with Canon and Nikon very close seconds. Sony seems to lag behind in this regard.
Most digital cameras use CompactFlash or Secure Digital. The difference is not worth worrying about unless you already have a good supply of one type.
Be sure to pay attention to the recommended speed class of SD card. If you are shooting video or shooting stills in rapid succession in RAW, this can be important.