Per default the standard GD image library supports PNG graphic formats. You will need to have that installed together with your PHP module for this library to work at all. Please refer to PHP documentation on specifics. Note that the newer versions of GD does not support the GIF format due to copyright problems. Hence by default only PNG is supported.
If you want JPEG support you will also need an additional library for PHP, again please see PHP documentation for specifics. For most practical purposes PNG is a better format since it normally achieves better compression then GIF (typically by a factor of 2 for the types of images generated by JpGraph). In comparison with JPEG format PNG is also better for the type of images generated by this library. So, the bottom line is, you should have a very good reason to choose any other format then PNG.
By default the image format is set to "auto". This means that JpGraph automatically chooses the best available graphic using the preferred order "PNG", "GIF", "JPG".