You may be using an old version of iPhoto, make sure you have version 5. iPhoto imports RAW files just like any other image. I'd recommend using RAW as much as you can but not if all you are using it for is to save image quality.
A RAW file is an unprocessed image, it is 100% of the information that came from your CMOS. As soon as that information is processed (IE converted to a .jpg or .tiff etc) certain attributes are applied to the image (as trpnmonkey said, White Balancing, brightness, sharpness etc.) once they have been applied you can never get them back except from the original RAW file (to put it in prospective, a JPEG contains 8 bits per channel of information, while a RAW image contains 12 bits per channel). Shooting in jpeg will set all of these parameters in camera, meaning if the camera gets it wrong, tuff.
Shooting in RAW lets you make all of the decisions about these parameters in-front of a computer later on.
If you don't need to do this, shoot jpeg.