Artifacts in a JPEG image are caused by sharp changes in colour or shade. The higher the compression, the worse the artifacts. I could try to explain exactly how it works, but it's an entire lecture of a course I'm not studying. Suffice to say it works in a similar manner to MP3, but with a 2D image rather than a 1D image (the sound wave). It's based on Fourier transformations, which deal with frequency rather than amplitude, and takes advantage of our eyes' decreased sensitivity to certain parts of the spectrum relative to other parts of the spectrum.
Also takes Mach bands into account to, I think.
Basically, the artifacts do not indicate a faked image, but with certain mathematical techniques it may be possible to determine if there's a chance it was faked. But since data is lost in the compression, it's sometimes hard to be sure.