File format for quality stills

An old discussion

Pictures that are "overly" large may cause video editing problems
Photo Scaling for Video https://community.adobe.com/t5/Premiere-Elements/Large-Still-Images-into-PE-One-Workflow/td-p/1983438

I ReSize pictures to 1280x720 to match video when saving out of Photoshop Elements

"What settings do you recommend to use for exporting pictures from LR that will be used in Premier elements?"

My habit is to use the LR Classic export dialog with the quality at 100%.   If you want to save disc space, you can use 60% to 80%.   You might want to crop to the frame size in your project settings first.  Typically that is 16:9 for most projects.   DPI (dots per inch) does not matter in digital workflows.  DPI considerations are for making prints on paper.   As Steve writes, the visual qualtiy of the final output is all that matters. 

Also, I didn't save the link where I read this, but a still picture and an individual frame in a video are very different

When you save a jpeg in a picture program it will often be 300 dpi

If my memory is correct, a video is 'something like' 72 dpi (this was awhile ago, so the discussion may have been about SD video, not HD)

The point being that whatever the resolution of the jpeg it will be changed to that of the video

I do know that the still pictures I add to the timeline in my HD 1280x720 project look good when I export

JPEGs will do just fine. 

Are you rendering your timeline before you judge the quality of the photo in Premiere Elements? Press Enter after you add your photos and the program will create a high quality preview of your timelime. Your video will look even better when you output it -- but rendering the timeline will at least show you something closer to your final, rendered piece.