Images uploaded to the Wurm wiki are usually in the PNG image format. This is a lossless image format, being smaller than BMP and providing a flawless image quality way beyond JPEG compression. Wiki image sizes are recommended to not exceed 150KB, which can be exceeded with PNG quite easily still.
Fairly good image processing programs let you optimize the PNG image further, greatly reducing filesize while still maintaining a very good image quality.
Images are most likely optimized when choosing to save the image, where you can modify additional options for the file format in the save file dialog. The example screenshot below shows you the PNG Optimizer dialog that comes with JASC Paint Shop Pro 8 (nowadays Corel Paint Shop Pro). The example image's filesize is reduced by 84.50% without significant quality loss, which helps people with slower connection a lot and also reduces Wiki traffic.
The important options are that you set the file type to palette based instead of greyscale or 24-Bit with or without Alphachannel (transparency), and set the colour selection method to Optimized Octree. Web-safe will look very corny, the optimized median cut looks still good, an optmized octree may yield you the smallest filesize.
The number of colours can be 256 at all times, it won't make much of a difference lowering the number of colours since every palette entry will only take up 3-4 bytes anyway.
Usually you may not need transparency and can choose the format to be non-interlaced, which yields the best results.