Images automatically compressed

Hello,

My website has been having some serious SEO problems recently and visitors are decreasing rapidly. Both Google Search Console and GT Metrix say I have problem with loading speed and it’s due to the images that aren’t compressed properly. So I took a look at some of the images they say I need to optimize, which reminded me this: At some point, when I uploaded images, they started to become automatically compressed. For example, I upload an 900×600 image, which it becomes 300 x 200 when I insert it in the page/post. As it looks awfully small, I have been fixing the size to the original using the WP dashboard. I was noticing that the quality gets really bad when I do it to .png files or images with a lot of blank and text (i.e. images I created using photoshop). But I was sort of ignoring it.

But now as I look at the images that GI Metrix say I have problems, many of them are the ones that automatically shrunk and start looking bad after I fixed them. So here are my questions:

1) why do images automatically shrink when I upload them?
2) does your them have preferences in file format? e.g. jpeg better than png?
3) I usually make the file size less than 100kb. Is it still too big?

Thank you!