From Michael Carr,
Your Guide to Digital Cameras.
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Probably the most significant feature when choosing a digital camera is the number of megapixels, which determines the quality of your photos. Choose too few for your needs, and your images will suffer. Choose too many, and you might be spending more cash than necessary.

For most people, however, deciding on the elusive perfect number can be tough. Below is a guide to help you choose, including what size prints you can expect to get and basic prices. (The prices, however, can fluctuate wildly based on extra features, and the cost per megapixel is constantly getting lower and lower):

2 megapixels or less

• This is typically found on smaller, inexpensive cameras or cameras in combination with other devices (such as cellphones or PDAs).
• It will be hard to make a high-quality print of any size, but these are just fine for e-mailing photos or posting photos for a personal web site.
• I wouldn't recommend it for family portraits or if you really need a nice-looking print.
• Also see Top Digital Cameras with Two Megapixels or Less

3 megapixels

:

• This is actually a good compromise between picture quality and low price for most casual photographers.
• You can print lovely 4x6 images, decent 5x7s and, depending on the camera, might even knock out a good 6x9 or 8x10.
• Also see Top Three-Megapixel Digital Cameras

4 megapixels

• You're getting nicer. These images make practically photo-lab quality 4x6s, and great 5x7s and 6x9s.
• You can print a nice 8x10.
• Also see Top Four-Megapixel Digital Cameras

5 megapixels

• Hello, enlargements! This will produce beautiful 8x10s, and even a nice 11x14.
• Now you are getting closer to professional photographer levels, and the quality shows it.
• Also see Top Five-Megapixel Digital Cameras

6 megapixels and up

• Wonderful image quality, but high price tags. You can print large photos, even 11x14 or perhaps more, with satisfying results.
• There are some high-megapixel cameras coming out with lower price tags than most, but they usually have very few features.
• Unless megapixels are the only thing you care about (it shouldn't be), don't get a camera that sounds outrageously inexpensive for its megapixel range.
• Also see Top Digital Cameras With Six Megapixels or More

Yes, I know it would be really cool to get that hot new 6 megapixel camera. If you have unlimited funds, great. If you're like the rest of us working stiffs, you don't want to waste money on extras you don't need. And I can tell you right now, if you're just e-mailing pictures to your buddies, you don't need it.

A couple things to keep in mind. People get nuts about megapixels, but more isn't always better. Higher megapixels means larger image sizes, which in turn means more expensive memory cards and more space devoured on your computer's hard drive.