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I've read in several places (photo mags, websites, etc.) that there are many different RAW converters around, not big name programs like PhotoShop, Lightroom, Picasa, PaintShopPro.
What differences are there from one RAW converter to another and why would one want to use one? I mean, isn't a RAW file basically just recording each pixel, and isn't the RAW converter just opening a file in a format your photo editor can use?
Of course RAW is "just" the pixels. But as a picture on your screen is more than "just the pixels", there is room for differences in software, for example:
If all software were alike, you wouldn't need RAW at all (except for pixel-peeping), as you'd just use the result of the software available in-camera.
Remember that in all cases RAW conversion is done, either in-camera, by an external RAW converter or by a RAW converter built into your viewing software. The native RAW format is simply not useful 'as is'. That is why some people call RAW format a 'digital negative', since the negative of film days was also not directly usable.
So which one should you use?
External vs built-in RAW converters?
Manufacturer vs third party RAW converters
In-camera RAW conversion to jpeg
Very convenient, no additional work, it looks exactly as the manufacturer intended.
But, limited control over the result. Later editing of the jpeg has the potential to compromise the quality of the result.
When it comes to processing RAW images, there is not necessarily a single correct way to process the data. RAW images contain original sensor data, which is usually a bayer array of RGBG pixels (rows of red/green/red/green and green/blue/green/blue pixels). The most common form if RAW image processing is bayer interpolation, which samples 2x2 quads of RGBG pixels at each intersection to produce a final image. This is the most common form of RAW processing, and is used by all of the major programs you listed.
There are other ways to process RAW images if they are a Bayer sensor (Foveon sensors are different, in that they stack all three colors at each photosite). These include "super-pixel" processing, which produces a lower-resolution final image, but does not overlap and interpolate sensor data to produce each image pixel. This usually results in less color moiré, and produces better color per pixel, at the cost of megapixels.
Another form of RAW processing is called Bayer Drizzle, which is based on Nasa's Drizzle supersampling algorithm. This process applies the drizzle algorithm to RAW pixels rather than RGB pixels, and produces a supersampled image output that can be two or three times as large as the original image. This process is not ideal for all types of images, however it is quite popular in astrophotography. There are even image stacking algorithms that can drizzle super-sample pixels from multiple RAW inputs, producing truly fantastic output. (DeepSkyStacker, and astrophotography stacking program, offers a Bayer Drizzle RAW processing option.)
A very popular third-party, open sourced RAW processor is DCRaw, which supports a wide variety of RAW formats, and gives developers low-level access to the original pixel layouts of the RAW files for maximum flexibility.
At least one of the programs you've mentioned in your comments on other answers is something that does more than just RAW conversion (or "digital development"). Phase One's Capture One Pro and Hasselblad's Phocus, to name two, also do tethered operation of various cameras/backs. (Capture One can operate just about anything that interfaces via Firewire. I've only ever used Phocus with a 'Blad, but there's not a lot you can't do with it other than move the camera stand around the studio.) If you're a multiformat working photographer, you'll probably want to consolidate your workflow as much as possible (rather than learning a bunch of different tools).
And don't forget that UI preferences can have a lot to do with program choices as well. (For instance, I have the latest and greatest version of Photoshop and love it for photo retouching, but I still prefer PSP 9 for creating raster graphics out of whole cloth. Photoshop CS5 will, obviously, do everything PSP 9 does, but not in the same way, and it's a whole lot less friendly for numerical precision. Even the latest PSP feels foreign for that kind of use.)
Straight-up converters -- the sort of thing that will let one correct contrast and white balance and simply save to another, more editor-friendly format -- have their place as well. They're often a low-cost (or no-cost) option for those who either can't afford or can't use an all-in-one converter/editor solution, usually because of OS incompatibility or hardware requirements. If the shiny new software requires a shiny new computer with a shiny new OS, it starts to get eat into the lens budget -- and who wants that?
There's something interesting in the core of your question: the idea of RAW as a messy, non-standard file format and a converter as something which brings that into a standard format.
This is absolutely correct. The thing is, most "raw conversion" software goes way, way beyond that, not just regularizing the RAW data but also demosaicing, denoising, setting curves for color and exposure, and and on and on. There's huge advantages of doing this while working with that data before putting it into the type of file an image editor like Photoshop or Gimp normally works with — you can get better quality, and you can keep your edits as a list of non-destructive operations which can be altered at any time before you do that final output.
So, really, it's a matter of where the line for "conversion" is drawn. There is a simple freely-licensed program called dcraw which does some of the fancier stuff but mostly just does the really basic RAW-format interpretation. Because the code is freely licensed and the program frequently updated, other RAW-conversion software (like RawTherapee) uses this as a base for exactly the "opening a file in a format your photo editor can use" functionality you describe. Then, the "converter" software also does many things which you might consider more the domain of photo editing software — basically, it's a blurry line.
There are quite a few differences actually.
At the basic level, many vary with the number of "knobs" they give you to control the resultant image. As RAW has become more and more the defacto format for hobbiest and professional alike, more tools like Photoshop and Lightroom have expanded their RAW converter toolset. Before, RAW converters offered you the tools you needed to "develop" your RAW image.
Additionally, the output of one raw converter won't necessarily match the output of another. The colors of say Canon's DPP would be more preferable to those of PhaseOne, while PhaseOne would have much more fine controls, and better over all workflow.
