Many digital camara’s nowadays allow creation of panorama images by choosing the panorama scene setting and then sweeping the camera around while keeping the shutter depressed. Overal the results are OK, but the resolution usually is not higher than that of the standard images. The advantage of taking a series of full size images taken from the same location in different directions and stitching them together is the much higher resolution that can be achieved.
Hugin is a very good open source software for creating panoramas from a series of photographs which have been taken from a single point. It does have a relatively steep learning curve due to the large number of optional settings, but if you start with a small series of photos with good overlap between them, usually the defaults will work well.
It is generally included in Linux distributions. A windows version can be downloaded from the Hugin page, which also has some beautiful examples.