(FORTUNE Magazine) – The last time I checked out digital cameras, they were little more than high-priced toys. A year later they're even more fun--but now they're worth the price. A dozen models priced below $1,000 deliver black-and-white photos that look terrific in fliers and brochures. They also create color images that look great when they come out of the inkjet printer and that can liven up any Website.

I've just spent a few weeks with one of the new gadgets, Canon's $700 PowerShot A5. It's small enough to slip into your pocket but comes with enough memory to let you shoot all day. The A5 is easy to use and records sharp, lifelike photos with surprisingly good color fidelity and detail.

Like other digital cameras, the A5 doesn't use conventional film. Instead it records images on a tiny grid of photoelectric cells called a charge coupled device, or CCD. When you snap a picture, the camera reads the CCD and stores the image as digital ones and zeros. You can then transfer the pictures to your computer and edit them with any standard graphics program.

What makes one digital camera better than another? A major factor is resolution--the number of cells in the CCD. The higher the resolution, the more detailed the image. The A5 offers a choice of two resolutions, 1,024-by-768 pixels or 512 by 384. Those are a bit lower than what's offered by other cameras in this price range, but large enough to fill a computer screen or produce quality prints of up to four-by-five inches. The camera ships with an eight-megabyte flash-memory card that can hold up to 89 high-resolution photos or 236 smaller images. If that isn't enough, you can buy additional memory cards for $80 a pop.

The A5 has the elegant look of a classic point-and-shoot camera. The rugged, four- by 2.7-inch aluminum case fits easily in your hand, and the controls are exactly where you expect them to be. A sharp, f/2.5 lens provides a slightly wide-angle field of view, and exposure and focus are adjusted automatically.

The A5 comes with both a standard optical viewfinder and a brilliant two-inch liquid-crystal display mounted on the back of the camera. You can compose pictures with the LCD, but it's most useful for checking out the shots you've already taken--so you can erase the losers and reuse the memory for new photos. One really nifty feature is "stitch" mode, which lets you line up shots to create a panorama of a skyline or landscape.

When you transfer photos to your PC, the camera sends a "contact sheet" of thumbnail images that appear on your monitor. Highlight the shots you want, click on them with your mouse, and they'll appear in full glory on your screen. The camera comes with professional editing software--a true case of overkill, but fun to play with. You can use the software to crop, enlarge, or shrink your photos. You can also improve brightness, color balance, and contrast. If you really like fooling around, you can edit your photo pixel by pixel, erasing nasty blemishes from a portrait or turning a realistic landscape into an impressionist painting.

All that's a lot of fun, but the true test of a digital camera's worth is the quality of the photos it takes. I still haven't come across a digital camera that can match real film. But the portraits I took with the A5, even in low light, displayed good shadow detail and accurate flesh tones, and outdoor photos were sharp and clear. Not many digital cameras display that range of sensitivity.

Other cameras in this price bracket have features that may appeal to you more. Hewlett-Packard's PhotoSmart C20 offers slightly higher resolution (1,152 by 872) but less storage capacity, while the Sony Mavica offers lower resolution (640 by 480) and less storage but comes with a 10x zoom lens that's cool for closeups. Since new cameras appear almost every week, it's wise to shop around. To get started, check out the Imaging Resource Web page (www.imaging-resource.com), where you'll find reviews, specifications, and test images that you can compare side by side. For information on the PowerShot A5, point your Web browser to www.usa.canon.com or contact Canon at 800-848-4123.