JPG is a lossy compression format, by this it means the file is compressed and by lossy, means that some data is deleted to make the filesize smaller. ALWAYS use the finest setting possible for JPG photography, whilst this will mean you have bigger filesizes, you are not losing as much photo information when the file is saved.
As for a free RAW editing software, you should have got a copy of Canon's DPP with your 7D, it is very good, give it a go