My understanding is that when editing a photo with Nik Software, you cannot process a raw file directly. Which format would be best to use amongst the option the plugin provides? Also, if processing raw files directly is not possible, doesn't that make shooting raw a bit less useful when using this plugin?
Shooting raw is still beneficial because you have more latitude in making initial adjustments like exposure and white balance. You'll want to do as much in Lightroom as you can before exporting to Nik. The most common format to use is TIF, as it is lossless.
If you have Photoshop CS, your best bet would be to export to Photoshop, and then do your Nik adjustments in layers (or better, with smart objects), giving you more control to tweak each layer.
TIFF is a good lossless format to use when raw is unavailable.
It is still a good idea to shoot raw because it gives you ultimate flexibility. You still have to process the raw file before you export to tiff, so you have another 'layer' of adjustment to refine your image with before you put it through the Nik software.
It also means you are not losing any quality by using JPEG compression.
And of course, you might want to edit the file later without the Nik software, so it's good to have it in raw anyway.