Vectors are good for things that can be mathematically described/simplified without significant loss of information (such as curves, shapes, some gradients, etc., and compositions of those) Many logos and fonts fall into this category, for example, and some clip-art do as well. For the appropriate graphics, vectors can give you higher quality and smaller file sizes. But it's not necessarily the right choice for everything. Real pixels do hold data, and vectorizing them will typically cause some data loss. You COULD vectorize photos and illustrations (vectormagic.com is a good one for that). But you just end up with a poorer approximation of the original raster data, ending up with a bunch of pixel-like polygons, because there's not really a better approximation of that high-resolution pixel data that can be easily described in shapes and lines.

Rasters are still superior not only for photographs, but for other uses outside of basic image redistribution, such as GIS data layers (where sensor data IS what's important), bump maps and terrain maps for games, 3D voxel images for medical imaging, live-action movies (which can interpolate complex scenes between raster frames), astronomy, etc. Even if you could vectorize the sensor data in those situations, you often wouldn't/shouldn't.