What is the difference between raster and vector image?

This is not a simple answer. Here is a link to a good explanation -  http://www.graphicdesignforum.com/forum/forum/graphic-design/resources/89-an-explanation-of-raster-vs-vector?t=41

In general, anything created in Photoshop is considered a raster format. If you create your file in Illustrator, it will contain vector data unless you import/place a jpg/tiff or other bitmap picture. Whenever possible, you should always try to design in Illustrator.