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I check wiki and it says both are outline fonts which mean there are vector images. The only difference is that Type 3 lacks hints.

Or do I just misunderstand what bitmap means?

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up vote 5 down vote accepted

type 3 can be any kind of postscript, including bitmaps, vectors, colour; all the features of the turing-complete postscript language.

type 1 can be only a special restricted subset of postscript functionality, not including bitmaps, which software can better optimize and display quicker and more beautifully. Type 1 can also be hinted, in order to help the renderer to do a better job.

As egreg said, in the tex world, type 3 is mostly used for bitmap fonts produced from Metafont (which itself takes a vector description of the fonts).

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I guess that the identification between Type3 and bitmap fonts is typical in the TeX world, because dvips and pdftex convert the bitmaps in PK format to Type3 fonts in order to include them into the produced Postscript or PDF file.

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For example: PSTricks defines its own dot font, which is a real vector font, but listed as a Type 3 font, because it has not the same structure as a Type 1 font. All user defined fonts, also called a softfont, are of Type 3.

The problem is that a lot of the publishers think that a Type 3 font is the same as a bitmap font. This is often true, but not in general.

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