Help with the theory behind a pixelate algorithm?

Programmer Question

So say I have an image that I want to "pixelate". I want this sharp image represented by a grid of, say, 100 x 100 squares. So if the original photo is 500 px X 500 px, each square is 5 px X 5 px. So each square would have a color corresponding to the 5 px X 5 px group of pixels it swaps in for...

How do I figure out what this one color, which is best representative of the stuff it covers, is? Do I just take the R G and B numbers for each of the 25 pixels and average them? Or is there some obscure other way I should know about? What is conventionally used in "pixelation" functions, say like in photoshop?

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