Note: The following was originally part of an email discussion with photographer Emily Roesly regarding using photos from the morgueFile.com Free Photos archive for creating vector graphics. The message was edited to share here the discussion of raster versus vector graphics as well as "autotracing" images.
First (and you may already know this), there are two basic types of computer graphics: vectors and rasters. Raster images (also known as "bitmaps" — although that can cause confusion with the .BMP "bitmap" file format — and "pixmaps") are represented as rectangular grids, where each space in the grid (the "pixel") is one color. Vector images are represented as geometric descriptions, e.g., of lines, curves, shapes, etc. Raster image file formats include .JPG, .GIF, .PNG, .BMP, and many other common formats. Vector image file formats include .SVG, .EPS, .WPG, and other formats. For a much more detailed discussion, Wikipedia's Image file formats page serves nicely.
So who cares, right? Well, raster graphics are very good for some things, but clip art is generally not one of them. They're good for photographs and computer-rendered scenes (and animations) where there are continuous tones. They're not so good for line art or animations consisting mostly of lines, curves, etc.
One readily-seen problem with using raster graphics for clip art comes up with scaling the images to different sizes. You can scale vector graphics to be very tiny or very large and (in theory) they'll still look as good as when they started. Doing the same with raster graphics can lead to an unusable mess -- lost detail if scaling to a small size, or chunky/jaggy images if scaling to a larger size.
Also, the "atomic unit" of a raster graphic is just a pixel, so you can modify a pixel or set of pixels, but the raster graphic doesn't understand the concept of a circle even if you have a bunch of pixels colored to look like a circle. In vector graphics, a circle makes sense, and you can edit the circle as a circle, not worrying about how that might affect the actual pixels being used on your monitor.
Second, autotracing refers to using software to automatically analyze a raster image and create a vector representation of it. There are various ways of doing this, but the end goal is to come up with a bunch of geometric descriptions that represent the original rectangular grid of pixels, with varying degrees of accuracy.
If you can open the .SVG file in the attached .ZIP file, it should look familiar to you -- but it is now a vector graphic, since I took your photo and ran it through the autotrace feature of Inkscape (a free, open-source vector graphics drawing program). I chose this image in particular because the content looked like it would convert well -- unlike, for example, a sunset with a continuous range of colors throughout the sky. I also played around with the image a bit in Inkscape and then exported it to this (raster) .PNG file:
Those edits were very easy to do because I was manipulating cohesive shapes rather than arbitrary collections of pixels.
BTW, if you can't open the attached .SVG file, and in case the .PNG file doesn't make it obvious, this was the photo I used as a source:
In theory, you should be able to size the attached .SVG file down for use on a postage stamp, or up for use on a billboard, and it will look just as good either way. The same would not be feasible with the original raster image.
So, for your original idea of using morgueFile photos as the basis for clip art, I would think that the morgueFile license would be sufficient if (for example) I took your photo, ran it through an autotrace routine, removed the solid-color background, modified the shape or other attributes of the bottle, and added some hand-drawn elements to turn it into a new, vector-based, clip art image. But autotracing alone would presumably not be covered by the license.
If you'd like to play with Inkscape, you can find it here:
In my opinion, it has rather slow performance, weak documentation, and an unfriendly user interface, so patience is required. On the other hand, it's my understanding that some illustrators use Inkscape to create and sell artwork on Shutterstock, which says a lot for a free software package. Inkscape is available for Windows, Mac OS X, and (of course) GNU/Linux.