Should you buy a DSLR or Point and Shoot Digital Camera?: Digital Photography School has a nice write up on the basic difference between Digital SLRs and point and shoot cameras and effectively point out the pros and cons of each.
From the article: “Before I get into the Pros and Cons of DSLRs vs Point and Shoot digital cameras I want to address a common misconception that I regularly hear among digital camera owners – that a cameras megapixel rating is the main thing to consider when determining a camera’s quality.
The fact is that megapixels are NOT everything. Despite point and shoot cameras now coming with up to 10 megapixels (Casio released one last month) their quality level is not necessarily has good as a DSLR with only 8 or so.
The main reason for this (and there are many as we’ll see below) is that the image sensor used in point and shoot digital cameras is generally much smaller than the image sensor used in a DSLR (the difference is often as much as 25 times). This means that the pixels on a point and shoot camera have to be much smaller and (without getting too technical) collect fewer photons (ok I lied about the technicalities). The long and short of it is that because of this point and shoot cameras need to work at slower ISO levels which means that they produce ‘noisier’ (or more grainy) shots. “