So your looking for a free piece of software to convert a raster image to a vector image? I didn't even know that these was technically possible until I searched for this myself, and frankly I was amazed. Maybe that was my ignorance, but I am well aware of the differences between a Raster and Vector image and I still cannot comprehend just how this works.
That said, I had half an hour messing about and the results were fantastic - so what I can tell you is that it most definitely does work! This is a godsend for web developers, for obvious reasons. For those of you who have stumbled across this article in some sort of strange unconventional manner, I will first explain the basic differences between a raster image and a vector image.

The difference between a raster image and a vector image is huge. Simply, a raster image is composed with pixels whilst vectors are made with paths. A raster graphic, such as a jpeg, is simply an array of different coloured dots (or pixels) whilst a vector image (such as .eps) is made up by lines or paths which can be either curved or straight. The major benefit of a vector file is that when scaled up the picture does not lose quality, at least not significantly, whilst raster graphics simply become a blurry mess of giant pixels. Each time a raster image is enlarged the pixels become bigger, and thus more obvious, particularly when the dimensions are distorted (say height
increased but width remaining the same). This was a major innovation for businesses and websites, who could develop a single image file depicting their logo or unique branding. This single image file could subsequently be scaled down to fit on a business card or letterhead, and then scaled up to fit say a large advertising hoarding, the quality of the images will remain almost the same. For a web developer or graphic designer this is a god send. I would liked to have demonstrated this in practice, however this website does not currently support the upload of Vector files.
Raster To Vector 7.0 is a light standalone, albeit very basic, image converter. It will convert any JPG, BMP, TIF, GIF or PNG image into various vector file types such as CAD DXF. It is then possible to either simply save the image as a vector file, or edit the vector file in CAD software. If you like running very light, say you want to keep your CPU usage right down, then this could be the best option, at least if you would prefer to use offline software rather than browser based packages.
The freeware version of the WinTopo software is, for me, better than many of the paid commercial alternatives! Simple to use, reliable, and light on any system. It converts BMP, TIF, GIF, JPG, and PNG files to a wide variety of vector formats including DXF, SHP, MIF, and WMF. This is my Recommended Free Raster To Vector Software.


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Comments
This is interesting but I am still not sure I would know what to do with it. Your explanation of raster and vector images is a good one.