Quality of Capture / Broadcast
Yahoo webcams were born at a time when most users were on slow speed dial-up connections, because of this the image quality of the webcams was a compromise between speed of update (fps) and image quality. The first webcams were very small (half the current size) as a way of increasing the image quality of a smaller image and being able to update fast enough to keep the image live. Users could choose to compromise on either lower fps or lower image quality. These days with high speed broadband connections the image speed is no longer an issue and so image quality is more important, unfortunately Yahoo has not quite caught up yet! Setting the image slider to the highest quality can still sometimes result in poor image being received.
This is where it becomes a little hit and miss as to how you get your image quality to it's highest level. You will find that when your webcam is good it will stay that way for as long as its open.
Step 1) broadcast your webcam and select preferences from the menu
Just moving the slider to the better quality will not actually improve the broadcast image to a great extent until you close and restart your cam again. Moving from the highest to the lowest quality without a restart will result in a webcam image that alternates with each frame from a poor quality image to an even worse quality one. You used to be able to view your own webcam to check the quality but now you can't :( so you have to rely on others viewing to inform you if your cam is poor quality, in most cases closing and re-opening your cam will help clear it up if you have followed the above steps.
No external software can improve the image quality of Yahoo web cams (Some blur filters available in StickerCam can appear to improve quality by removing image 'noise' or adjust lighting/colour/etc...).
Other webcam software can produce far higher image quality, a good example of this is Skype, unlike Yahoo which transmits whole images with each frame, Skype transmits changes between frames resulting in much higher image quality especially when there is not much movement (E.g. chatting on your webcam) Skype is able to improve the image quality with each frame where as Yahoo has to transmit the entire image each time there is movement even if only a small area of the image has changed.
Ultimately the quality will depend on a number of factors, but if your webcam is a good quality one so you start with a sharp clear image, Both you and the receiving person are on broadband connection and you use a modern webcam software (Skype, MSN Live, etc) you stand the best chance :)