Over a short length, the cables don't make a difference. What is different is that in the case of the component cables, the TV has to convert the component analog signal to digital. In the case of the HDMI cable, the signal is already digital. So there may be a perceptible difference if the TV doesn't do the conversion well.
Putting aside picture quality, the reason you should use the HDMI cable is that it carries the HDCP signals, component does not. If the source device, say a cable box, looks for the HDCP handshake, and doesn't get it, it Will not output an HD signal. So if you want to watch HBO in HD from a cable box, you have to use HDMI or DVI.
I use the component cables. Then again, I spent about on them (gold plated ends, large conductors, thick shielding, etc) for both the video components and audio channels. And, I bought them a few years ago, before HDMI cables were even around. The difference in performance between top-end component video cables and HDMI cables is negligent. But, if you just use standard RCA cables - like the cheap ones the cable TV company gives you - you won't get as good of quality as the HDMI cables.
As HDMI cable connections become more and more widely used, we are often asked: which is better, HDMI or component video? The answer, as it happens, is not cut-and-dried.
First, one note: everything said here is as applicable to DVI as to HDMI; DVI appears on fewer and fewer consumer electronic devices all the time, so isn't as often asked about, but DVI and HDMI are essentially the same as one another, image-quality-wise. The principal differences are that HDMI carries audio as well as video, and uses a different type of connector, but both use the same encoding scheme, and that's why a DVI source can be connected to an HDMI monitor, or vice versa, with a DVI/HDMI cable, with no intervening converter box.
The upshot of this article--in case you're not inclined to read all the details--is that it's very hard to predict whether an HDMI connection will produce a better or worse image than an analog component video connection. There will often be significant differences between the digital and the analog signals, but those differences are not inherent in the connection type and instead depend upon the characteristics of the source device (e.g., your DVD player) and the display device (e.g., your TV set). Why that is, however, requires a bit more discussion.
Several people a day are searching for an interconnection solution by trying to connect HDMI to Component outputs through a cable for their high-definition equipment. Unfortunately, this isn't a matter of rearranging wires and having the right type of connector. There is a fundamental analog versus digital incompatibility problem similar to the upcoming digital broadcast TV switchover versus your current rabbit ears that receive analog broadcast signals. They aren't compatible and leave people confused just like the poor fellow in the commercial.
Component video is based on an analog format. With analog signals, the voltage signal on the wire is in a wave format and how the wave changes in height is what is important. Theoretically it has an infinite number of values between zero and the maximum, somewhat like the variable windshield wipers I had on an old Thunderbird. With the HDMI or DVI format, these are based on digital signaling. Digital as you probably have heard, uses ones and zeros with a series of pulses all at the same height and they are either present or missing. At the other end, processing equipment reassembles the information. In a 4-bit binary coding, you can have 1 of 16 different values as 4 1's and 0's assembled as a group can have 16 different combinations. So equipment at the other end of the cable that is detecting signals and looking for analog sine waves would put out total gibberish if it just received pulses of 1's and 0's.
Some solutions are very easy. If an HDMI or DVI output is available on both boxes, use those. The difference between DVI and HDMI is that HDMI caries the audio in addition to the video signals. But DVI is just as good and other than the expense of an extra audio cable, that will solve your problem. If you were trying to use the Component outputs because you already had the HDMI port tied up, they make HDMI switch boxes that are fairly inexpensive where you can plug multiple HDMI cables in on one side with one output on the other.
Via component cables an analog signal is transfered. HDMI is digital. Among other things this has the following advantage: As long as the data is transferred correctly you have the perfect image data arriving at your TV. There won't be a single pixel difference in what the 'sending' device puts out and what reaches your TV. Component signals (as all analog signals) can vary in quality and you can get disturbances.
So actually: At first glance HDMI cables might appear more expensive than component cables, but that's not entirely true. For HDMI the requiered quality of the cable is related to the length you need. If you only need to cover a short distance (two or three meters) a cheap cable will give you the best possible result that could ever be achieved by any means ... it's digital ... the cheap cable has no influence on the image quality ... just like the network cable your computer uses to hook up to the inet has no influence on the image quality of videos you download / stream.
Of course this doesn't mean component is bad: Among affordable analog video connections it's probably by far the best, but HDMI just has the advantage of not having to care about the signal being unintentionally "affected" by outside influences during transfer. So if you can: HDMI is the better choice.
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