What causes this effect? The boundaries look chunky and weird. I never seen this on PNG.
I also have noticed this for JPEG images only, not PNG. For example these captcha images. The skies don't appear clear and natural at all, they appear speckled with random magenta, yellow and cyan pixels. Why does this happen in JPEG images? Can someone explain what causes this? Is this caused by some sort of lossy compression?
Also, with JPEG images containing noise and chunky boundaries, why are they so popular? If PNG doesn't suffer from these problems?
DPI (dots per inch) in an image determines how smooth or chunky it looks when you zoomin. Yes to reduce the size, jpg uses lossy compression.
Captcha images are low res files on purpose because they need to load quickly and they are not supposed to look particularly fine - they have quite a simple, specific purpose.
Magenta (complement of green), yellow (comp., of blue) and cyan (comp., of red) are primary colors RGB. sRGB is the color gamut used in jpg compression which explains you saw these colors.
Noise and resolution are variables independent of format of an image.