What is the difference between olive oil, virgin olive oil and extra virgin olive oil and which is the best to use? Do they all do the same job? Does it matter which country they come from?

I have read that the only difference really is in the taste. Of course the extra virgin is the most pure but, for cooking I use normal olive oil. I would use the virgin or extra virgin in a salad dressing or similar, where you can really taste it.

Extra virgin oil is generally not used for cooking. It is usually used to add flavor to salads, sauteed vegetable, etc. It has the most antioxidandt benefits. The virgin olive oil is better used for low to medium heat cooking, such as frying while the olive oil can be used for cooking on high heat.

I understand the differences in taste, after all you can also buy flavoured oil, but I'm puzzzled about what effect heat can have on the oil and why it can have an adverse effect. Can anyone explain?

I don't think heat has all that much of an adverse effect as long as you don't burn it, but then this will only affect the taste. Olive oil is one of the "good" fats as it isn't saturated.