Dvips, as originally conceived, can only import a single
graphics format:
encapsulated PostScript (.eps files).
Dvips also deals with the slightly eccentric EPS that is
created by MetaPost.
Apart from the fact that a depressing proportion of drawing applications produce corrupt EPS when asked for such output, this is pretty satisfactory for vector graphics work.
To include bitmap graphics, you need some means of converting them to PostScript; in fact many standard image manipulators (such as ImageMagick's convert) make a good job of creating EPS files. (Though Unix users should beware of xv's claims: it has a tendency to downsample your bitmap to your screen resolution.)
Special purpose applications jpeg2ps (which converts JPEG files using PostScript level 2 functionality) and bmeps (which converts both JPEG and PNG files) are also considered "good bets". Bmeps comes with patches to produce your own version of dvips that can cope with JPEG and PNG direct, using bmeps's conversion library.
This question on the Web: http://www.tex.ac.uk/cgi-bin/texfaq2html?label=dvipsgraphics