You really don't need to understand any of what you mention MR, it doesn't relate to your camera.
What your camera is designed to do is to take the basic colors, do complicated algorithms with all the other information the camera is designed to read, and to make a worthwhile photo from that information.
There is a saying, KISS or keep it simple stupid. Not that we are being called stupid, but I think it means that we shouldn't try too hard to make something more complicated than it is. In truth, digital cameras are very complicated but they are designed so we don't need to do a lot of hard thinking in order to take reasonably good photos.
Camera companies want you to buy their cameras, and each company is in competition with other camera companies so it's in their interest to take much of the hard work out of the technical side of it. It should be fun, most of us are not wanting to be professionals but want only to take good photos. Even those who consider themselves to be professional I think find digital cameras take a lot of the hard work out of photography, but there are 'high end' cameras for such people costing a lot of money.
Digital cameras have come a long way in the past few years and many now incorporate technology used in professional cameras, those which are in the mid range of the market of DSLR cameras. Not only does the camera make a difference to results, but so does the lens used. There are the cheaper lens and those which can cost thousands, the prime lens. Prime lens typically involve a lot more glass in their workings.
There is a huge range of cameras from the simple point and shoot, the prosumer cameras meant to be closer to the DSLR, and a range of DSLR cameras. Unless you have a DSLR the sensor size will be much smaller, the mid range DSLR has a slightly smaller sensor than a 'full frame' professional camera. Not long ago it was said to be impossible to pack too many pixels on the small sensors of 'compact' cameras, but technology moves on and they are now doing wonders. If you have an older camera it probably won't give as good results as a more recent one.
http://en.wikipedia.org/wiki/I...
Does all this matter? It does if you want to get better results and if you can afford to upgrade, otherwise one has to cut ones suit according to the cloth. I personally wanted to be able to get huge photos of tiny insects so I sold a heap of stuff on ebay and invested in a prime macro lens, it was the only way I could see I was going to be able to achieve my goal.
Vickie, take the opportunity to upgrade if your camera is not behaving. They are so much better now! It can be daunting to have to learn to use a new camera but the rewards for the effort you put in are well worth the agony.
Now I know I won't lose quality when I convert to jpegs, I was afraid I did. 
Good thing for me that I love the editing end of it 
You will need to click on the "thumbnails" here to fully appreciate the difference between the two photos.
