GIFs are a type of computer image that have small file sizes and are quick to download. The abbreviation stands for Graphics Interchange Format.
Small clear gifs (1 pixel by 1 pixel) are often used to trigger the delivery of cookies as their download within a web page or advert creates a connection with the a server that is then able to deliver a cookie to the viewer’s browser, or read a previously delivered cookie.
As opposed to the JPEG format, the GIF format can have a maximum of 256 colours so is poor at displaying photos. However, the GIF format is better at retaining sharp lines and can be used effectively for logos and has a simple transparency feature. A related format (sometimes called GIF89a) is an animated form of the GIF image and is commonly used on the web in the form of banners.
There are patent issues with the format due to the compression technology used to create the images and commercial online companies are expected to purchase a license. Wikipedia has more details about these issues: GIF.
See also PNG, which is a more modern format similar to the GIF that is gaining popularity on the web.