Can I use this camera setup with arduino mega to capture images? Has anyone tried something like this with mega?
Also, the link says that the file will be stored in a JPG file. If that file is saved in SD card, can it be sent to any phone via gsm/gprs?
The ArduCAM shield can output an image in JPG format, on its serial port. It's up to you to send that data stream via bluetooth, or to store it on a SD card. If you only store it on a SD card, a bluetooth module is not required.
And would it work fine with arduino mega?
A Mega is fine, because it has multiple Serial ports, i.e. one for the ArduCAM shield, and another one for the BT or SD module or USB. An Uno only has one such hardware port, so that another serial connection has to be implemented in software.