This is an excerpt from PC Magazine, read the whole article here: Feature from PC Magazine: Pick the Right Camera
First, figure out a budget. About $100 will buy you the most basic digital camera, with 4 megapixels at best and likely no optical zoom (just digital zoom). Cameras from $200 to $450 come in a huge variety of shapes and sizes (from compact to superzoom 35mm lookalikes), although the most popular are 5- or 6MP models with 3X optical zoom. The next price tier—$450 to $600—gets you much more in terms of optical zoom, megapixels, and features. Last but certainly not least, you can get a decent D-SLR (with lens) for about $600, but a pro-level model can cost up to $8,000 (with a variety of lenses).