JPEG is a commonly used method of lossy compression for picture. You can adjust the compression level, allowing you to choose the best tradeoff between file size and quality. JPEG typically achieves 10:1 compression ratio with a little loss in image quality.
The main reason choosing JPG as the solely supported background image is bacause it is most common format used and distributed. Even your camera has ability to take the picture as JPG image. Or you can get the image you want.
If you need to convert your image to JPG, you can use freely available IrfanView (PC only) or other image viewer. Most of operating system had freeware to convert image from one to other formats. Most of paid-application for image processing such as Photoshop can do this also.
There's a "best practice" image size suggestion up there. If possible, try using image that has that size. The video result will looks better in the player. Nevertheless, if you did not have the image in that size, mp32u.net will try to resize your image by pertaining the ratio to keep it proportional. Rest assured, the video result will be compatible up to 480p Youtube video resolution.