Optical Zoom
Optical zoom uses the optics (lens) to enlarge the subject in the frame.
Digital Zoom
Digital zoom crops and enlarges the subject which reduces the quality of the image.
Without a doubt, optical zoom is better than digital zoom. In fact, I suggest disabling digital zoom on your camera if you can (my point-and-shoot camera allows this). Digital zoom does what you can do later in an image editing program like Photoshop and opting to do it later does not cause irreversible damage to your original image.
By: http://learnprophotography.com/
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