The Caveat which a lot of people don't understand, is that imageHandler copies the images from the images folder compresses and resizes the images and stores them in the bmz_cache and serves these images on your site.
The original images that you upload into the images folder are not changed in anyway, this is to ensure that if you decide to change the image type, compression, watermark etc of images displayed on your site imagehandler can go back to the original untouched files, and create new images matching your changed specs to serve up to the customers.
As DarkAngel says its a good idea to save your original images for the web, because if you upload straight from your camera the images are often a 1 -3mb in size and that takes up a lot of server space once you get a few hundred products
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