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I read from the LaTeX WikiBook that in order to achieve the highest quality output we should choose the shortest compilation route. However I found no clear explanation for this, except the vague remark that in each step some information may be lost.

Is it true that pdflatex produces better quality output than latex+dvipdfm or that latex+dvipdfm produces better output than latex+dvips+ps2pdf? If so what is better and why is there this difference?

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Better means foremost to avoid Type-3 fonts like dvips might introduce them. These are bitmap fonts that don't scale well. Other aspects of quality could be file size, links within a PDF and other PDF specialties. –  Christian Lindig Apr 6 '11 at 20:52
    
I didn't want to suggest that PDFLaTeX produces the best quality but just name some aspects of quality that could be compared among solutions. Another one that I missed could be font encodings such that cut-copy-paste from the final document works reliably. –  Christian Lindig Apr 7 '11 at 5:27

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up vote 12 down vote accepted

pdfLaTeX provides microtypographic extensions such as font expansion and character protrusion, providing better optical justification. Further it directly supports PDF features.

Classical LaTeX compiles to DVI. It has to hide PDF features within DVI special commands.

Have a look at:

Both documents are written by Hàn Thế Thành, the originakl developer of pdfTeX.

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