Note of Interest:
Just because there are an increased number of megapixels on those small point and shoot cameras, does not mean that the quality of the photos will be any higher!

VERIFICATION:

Sensor Sizes in relation to photo quality:

Sensor Sizes
www.dpreview.com/learn/?/key=Sensor_Sizes

The Laws of Physics

Luminous-Landscape
http://www.luminous-landscape.com/essays/sensor-design.shtml

Visible light is found in the wavelengths between a 400-750nm (.4 to .75 micron). Obviously, an individual pixel (photo site) can't be anywhere near this small and still record photons. Today's smaller digicams feature sensors down to about 2.2 microns in size, and as we all know can be quite noisy. At this small size they simply can't capture enough photons as compared with their inherent noise level. DSLRs offering 8-12 Megapixel on APS sized sensors seem, therefore, to have settled in the 5-6 micron level and offer an optimum combination of resolution, low noise and moderate cost.
In summary, if you try for ever higher resolution in a small chip – something's gotta give. The smaller the pixels, the lower the quality as compared to a similar sensor with larger pixels. Very small pixels (sub 5 micron) start to run into the laws of physics, where signal to noise ratio, and the simple ability to capture enough photons limits their ability to sustain significant improvements given known technologies.

Making Sense of Sizes

So now we have enough information to try and make some sense of the entire issue of relative sensor size, image quality, and costs. Put simply – bigger is better, and costs more. That's the core of any discussion about digital image sensors.
The statement that bigger is better has implications for the competitive marketplace. In the days of film no one argued with the fact that large format produced superior image quality to medium format, and that medium format offered higher image quality than 35mm, and so on down the food chain. (Issue of features, convenience, and size aside.)...

This example holds true in much the same way today with digital. When enlarging medium format film, the fact that it required only a 4X enlargement to 35mm's 8X to make a roughly similarly sized print ...

Like Falling off a Logarithm

Every photographer is familiar with the F stop scale, the ratio expressed logarithmically of a lens' focal length to aperture. Each stop represents a doubling or halving of the amount of light reaching the sensor or film.
... F/2.8 – F/4 – F/5.6 – F/8 – F/11 – F16 – F/22 – F/32 – F/45 ...
Similarly, going from a 6 Megapixel chip to a 11 Megapixel one doubles the number of pixels, and the F stop ratios are a convenient way of thinking about this. Is it any coincidence that standard F stop increments are very close to the Megapixel counts on chips? F/5.6 (6MP) to F/8 (8MP) is one stop – a doubling. F/11 (11MP) to f/16 (16MP) is another doubling.
But, as we all known from our personal experience, such an increase, a doubling of pixel count, doesn't produce a doubling of apparent resolution. Subjectively what is seen is that such a doubling produces a noticeable increase, but not a dramatic one. It isn't until one increases pixel count by about two "stops" that an obvious advantage is shown by the larger chip. This is seen when going from a 6MP to an 11MP camera, or from a 16MP back to a 33MP or 39MP model. Simply put, it takes a quadrupling of area to produce a meaningful visible difference between sensors, even when both are being reproduced at the limits of the reproduction technology (say, 300 PPI on a print).
As to what these differences may be, we are now in the realm where bar room and discussion forum brawls break out. Some claim not to be able to see any significant differences under these circumstances. If so, fine, simply carry on as before. No one is trying to twist your arm. But, I can see the difference, and so can many other photographers.
What it is that we're seeing is another matter. I describe it as micro-contrast; very fine tonal transitions that seems to get lost with smaller sizes. This could well be caused by the relative lack of strain on the camera's lens when lower magnifications are called for. It is also something that we've always seen when comparing larger formats to smaller ones in the film world. Few would argue that a contact print from 8X10" film, or a 2X blow-up from 4X5" film, shows appreciably higher image quality than 35mm, even when both are printed well within the resolution limits of their optical train and the printing paper itself.

Having more MP doesn't give you better shots
Ipernity Blog
http://www.ipernity.com/blog/robertoballerini/28881

Tuesday November 13, 2007 at 09:44AM

... Vegitill's post:
www.ipernity.com/blog/14831/28793

Take a look to the 6mpixel.org site.
A more correct statement of this post title would be: having more MP doesn't give you better shots if the sensor size remains the same!
To have a more precise digitalization of a scene, having more pixels isn't sufficient; you have to have a corresponding increase of the sensor size or a better quality of the sensor sensibility; without those conditions, you will only capture more thermal noise: this is what I can understand from their site and what I can subscribe.
http://www.ipernity.com/blog/robertoballerini/28881

Puff! (disappeared) pro replies:
The problem seems to be mainly on compact P&S cameras; in the DSLR world they're increasing the size of sensors; the latest sensors have a surface greater than a 35 mm film.

Don Andre pro says:
You're right about noise, but there's also diffraction that is important to know about.

Diffraction occurs when a wave passes a small gap. The wave will magically expand behind that gap, reaching places that had no direct line to the center of the wave. (see this picture for example:
Wave Diffraction
http://en.wikipedia.org/wiki/Image:Wave_Diffraction_4Lambda_Slit.png
or take a look at this video:
Wave Diffraction Video
http://video.google.com/videoplay?docid=4570787435193654614

As light is also just a wave this also happens in photography, the gap there is also there and called aperture. The smaller this aperture gets the more the light will expand anew at the position of the aperture reaching much more places on the sensor. Usually this concentrates around the centre of the pixel it would normally hit creating what is called an airy disk. The smaller the aperture gets the larger these disks become and obviously the closer the pixel density the more overlapping you'll experience.
Naturally the overlapping of the airy disks leads to a drop of sharpness and resolution. Typical DSLRs currently are diffraction limited at about f/11, after which sharpness drops. At f/16 for example you'd have more in focus, but it will be less sharp than at f/11. Now don't search for f/16 in a compact camera, you wouldn't find it! Because of their small sensors and their small pixel gaps, these cameras never go beyond f/8 really and as the article says some are limited by f/5.6 already. That's also why resolution doesn't always increase if you just add more pixels.
Sensor Size Comments
http://www.ipernity.com/blog/14433/28881/comment/826576#comment826576

Yahoo Answers on 12MP point and shoot:
http://in.answers.yahoo.com/question/index?qid=20080124034141AAflgrR

3) There are other reasons not to get a 12MP imager though--including noise and interference between closely-packed photosites so that a 12MP camera actually delivers a worse image than a lower MP camera on a point and shoot sensor of the same physical size. So, as you increase megapixels, at a certain point, you get diminishing returns.

4) On an SLR with a huge sensor (height x width), the difference between 7MP and 12MP is big--with a lot more apparent resolution. On a point and shoot, with their smaller sensors, the 7MP camera may actually deliver the better image.

For most reasonable print sizes, most people don't need more than 5 or 6 megapixels, even on a point and shoot.