Your ILLUM camera has two image file format options in Settings > File Formats: RAW (default) and XRAW.
We'll go over the differences and why you might and might not want to use them.
NOTE: You may also want to read about Desktop 4 and Pairing Data.
NOTE: With Desktop 4.1+, you can save as XRAW postcapture, in Lytro Desktop.
Lytro RAW is the default file format. It contains all the light field data your ILLUM captured, and all the information that Lytro Desktop needs to process the image.
It's about 50Mb in size per picture.
This format results in the best performance on your camera, and unless you need XRAW (see below) you should stick with RAW.
Lytro XRAW is identical to RAW, except your camera's specific pairing & calibration data is added.
It's about 110Mb in size.
WARNING: because this format is 2x the size of RAW, your camera must write 2X the data and thus post-capture write speeds will be 2x longer, negatively affecting frame rate performance. You will also fill up your SD card twice as fast.
We recommend you only use XRAW as needed, rather then as the default format.
So, when do you want to use it? If you want to provide someone else with a raw image that they can view in Lytro Desktop, you'll want to give them an XRAW file, otherwise they will not be able to view your image in the highest image quality possible. They can still view it, but Desktop will have to display without having your specific camera's calibration data, and therefore, image quality will suffer.