Buying a digital camera is a great investment for most people, since it allows them to take as many photos as they want without ever again needing to buy film or pay the cost of processing the film. However, with so many of them on the market today, it's tough to decide which one will be the best choice for your particular needs.  

Not too long ago I went through this process myself. At first I was overwhelmed by all of the choices, so I tried to break it down and look at just a few key factors. This made choosing a digital camera much simpler.

I think the most important factor in deciding how to choose a digital camera is the camera's resolution. A camera's resolution, measured in megapixels, is probably the best reflection of how good the photos from the camera will be. If you're just taking photos to post on the web or send via email, you probably don't need to worry about resolution quite so much. But if you plan on printing any of your photos, I would suggest that you get the highest resolution you can afford.

In addition, you'll probably find that you'll use the camera's zoom a lot, making it another important factor to consider when choosing a digital camera. More zoom is generally better, but be sure you're comparing the optical zoom between cameras and not the digital zoom.  Digital zoom only makes objects appear closer by cropping off the edges of the photo and expanding the image, resulting in lower resolution. 

Next, you'll want to consider the camera's size. What do you plan on using it for? If you're planning on using it for more formal portraits or high-resolution, big zoom shots, then you may want to consider a digital SLR (single lens reflex) camera similar to those used by professional photographers. Though they're expensive, retailing around $1000, they take the best photos of any digital camera. 

However, the downside of digital SLR's is that they're bulky and heavy, so they're awkward if you want to carry them around. If you'll be using your camera mostly for spur-of-the-moment shots or to takes pics at family gatherings or parties, you will want to carry the camera around with you often. In that case, an ultra light camera is the way to go. Though the resolution and zoom won't be as good as standard compact digitals, you'll be able to take your camera anywhere.

Finally, consider any other options that may be important to you such as a large screen, interchangeable lenses, or manual photo controls. With all of the digital cameras that are available, you should be able to find something that will fit your needs perfectly. 

So yes, there are a lot of factors to consider when deciding how to choose a digital camera, but I feel that resolution, zoom, size of the camera, and the size of your budget are by far the most important.