A .nrg file is a Nero CD-Image File. Nero Burning Rom can create and burn CD-Images with the extension .NRG. Nero can also burn other possible image files like CloneCD Images and standard .ISO files. These files would usually be large considering they contain the contents of an entire CD.
There is a variety of software titles that can make use of these image files. For example, Alcohol 120% or Daemon Tools can mount Nero CD-Image Files onto virtual CD drives (so you don't need to burn to use them) or you can burn the image with Nero Burning Rom.
