One of the most heavily touted features of most consumer-oriented cameras, and even some pro ones, is noise reduction. Unfortunately, it almost always makes your photos look terrible, and you should turn it off whenever possible.
Noise is an unfortunate byproduct of digital sensors. The dimmer the light in your scene, the higher you'll have to crank the ISO, and the more noise will appear in your image. Noise levels can range from barely-noticeable to oh-my-god-who-barfed-on-my-photo.
The solution put forth by camera-makers has been noise reduction. When your camera compresses the image as a JPG file, it applies an algorithm that is supposed to magically wipe away uglifying noise. It's a feature in every camera you can buy, and is almost always touted as being "Advanced" or "Superior" or "Next Gen." With great sounding words like that, why wouldn't every user crank up the Noise Reduction?
Because what you think is salvaging your photos is actually destroying them.
Noise Reduction works at the expense of detail. The only way that software can diminish noise is by averaging out the values of a group of pixels. The algorithm is supposed to detect where contrast and edges are, so that detail is left intact. But it never does it very well, and the effect is the smudging of fine detail. What you end up with are photos that look like smeared, swirled messes. The alternative, simply leaving noise intact, is really not bad! Noise can look gritty and cool. If it's really over the top, no amount of noise reduction is going to save it anyhow.
Here's an example. I shot this boring view of our ceiling at Gawker HQ with an Olympus EM-1 in JPG mode. The first shot has NR turned on at its max setting, the second one has NR turned completely off (these are 100% crops).
They look pretty similar at first glance. But click the Expand button. See how much more detail is preserved in the second shot? Sure, it is noisier. But it's sharper and more true-to-life.
To see the effect even more clearly, compare a JPG with Noise Reduction to a RAW file. Shooting RAW is the best way to maintain the highest level of detail possible. Here is a crop of JPG shot with NR on top, and a RAW shot on the bottom.
See the difference?
There are forms of noise reduction that work. If you have dedicated software that handles NR on your computer, and know how to use it, it can work wonders for specialized purposes. If you work in Photoshop or Lightroom and know how to be gentle and discerning when applying noise reduction, it can work out OK. This type of NR can harness all the power of your desktop or laptop to really focus on preserving detail. But the NR on your phone, or in your camera, is no good.
Unfortunately, we've been conditioned to see smoothed-over images with heavy doses of noise reduction as superior. Even Apple's recent iPhone 6 announcement touted its noise reduction as a great feature, all the while displaying example images on their website which, to my eyes, look weird and unnatural:
Expand that image by clicking the corner button. Do you see the smudged out areas of detail? It's subtle, and I'm being a stickler, I know. But why accept our photos being degraded simply because companies want to force "features" on us?
Do yourself and your photos a favor and turn off noise reduction whenever possible. Embrace the noise.