There are four types of formatting that should be considered.
Particularly on the Web, people don’t tend to read everything they see. They scan the text first to see if there is enough information in their to make it worth their time reading the whole thing. Formatting gives the reader stopping points as they scan down, as well as highlighted text that you need to pay special attention.
Bold is very useful in highlighting the key points in a piece of text. It should not be over-used, or else it negates the purpose of it (see The Under 10 Rule for Bold)
Italics should not just be used as an alternative to bold. It should either be used to stress a word or phrase (as if you were speaking it out loud) or else used for names, book, places, etc.
When scanning a piece of text, it is much more difficult to notice an italicised piece of text than one that has been put in bold.
Unless you have no other option, do not underline text. As most people now use the web, underlined text is associated with hyperlinks – people expect to click on the text to go somewhere else.
The exception to this rule is either when you are writing something for print, or if the font you use does not appear sufficiently different when you apply bold. Fonts like Courier New (typewriter-style fonts) don’t become much bulkier when you bold them (Courier New), so you may not notice the difference when scanning.
Like bold, larger text gives fixation points for people who are scanning text rather than reading every word. Larger text is usually used for headlines, and sub-headlines.