Vector graphics are preferred as icon and system images for the XO. They are re-sizable and usually are small in (storage) size. SVG (scalable vector graphics) is suited to diagrams, maps, and other non-photographic images.
It is generally better to save in "Plain SVG" format. Usually this appears in the program's Save As dialog box as an alternative format (as opposed to just "SVG", which might be program's own version of SVG). This is for reasons of compatibility, amongst other things.
In Adobe Illustrator or Inkscape, especially Illustrator, the default file format includes information (such as user preferences, and user system and login data) that is not needed in uploaded files. This increases the file size unnecessarily and sometimes causes thumbnails to not render properly.
Vector art is best for printing. Since the art is made from a series of mathematical curves it will print very crisp even when resized. For instance one can take the same vector logo and print it on a business card, and then enlarge it to billboard size and keep the same crisp quality.