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Digital images can contain data embedded within the file. This data (often called Metadata) is useful for keeping track of details about when the picture was taken, the settings of the camera while the picture was taken and even comments about the subject of the picture (usually entered later). Most digital cameras use a format called EXIF that standardizes the method this data is encoded. Each type of data stored in the EXIF header has a specific "tag" to identify it.
The most useful EXIF tag is the Date/Time. This stores the date and time the picture was taken. Most digital cameras automatically supply this value inside each image. FotoAlbum will auto-extract this value when the thumbnail is built and use it to display your images by date.
The convenient aspect of storing data within the image is that it can't get lost or separated from the image even if the file is moved from system to system. FotoAlbum provides a means of updating the Metadata within images to reflect any changes you make to the picture date and/or caption. This ensures that any work done entering that data will not be lost.