What is PSD?

PSD stands for "Photoshop Document", and as

the name implies, its Photoshops native file
format.
Good format for manipulating
and changing images with
control over separate image
channels, layers and paths.
Can preserve layers. PSD files
can handle simple vector
layers, making them more
suitable for importing and
exporting data from programs
like Adobe Illustrator.
PSD files large size and
capability to save significant
amounts of file information
make them an excellent
choice for working files.

PSD supports masks,
color profiles, alpha
channels and spot
colors.

Importance of PSD
Of all the file formats that Photoshop supports, the
PSD format is probably the most important. PSD stands
for "Photoshop Document", and as the name implies,
its Photoshops native file format. PSD is one of the
few file types that fully support all of the powerful
features that Photoshop gives us, like layers, layer
masks, adjustment layers, channels, paths, and so on. It
also serves as your working file. When we open an
image in Photoshop, regardless of which file type the
image was originally using, Photoshop temporarily
converts it into a PSD file behind the scenes so we can
work on it with all of Photoshops tools, commands and
features at our disposal.
Disadvantages of JPEG

Loss of image quality
Sharp edges tend to come out blurry
Longer page load time than the GIF Format

Disadvantages of PNG:

Does not support animation (as GIF does).
The PNG format is not as well known or
accepted in the Web graphics community. On
small images, GIF can achieve greater
compression than PNG

Disadvantages of TIFF
Large file sizes, around 20mb for a 10
megapixel image, so larger storages devices
needed for long term archival use.
Good specification computer needed to
process and load images.
Most website and online images galleries do
not support tiff uploading.
Slow speeds when transferring to online
galleries that do support TIFF files

Disadvantages of EPS
The main disadvantage of EPS is that the files
can be very large. Several megabytes is not
untypical.
Useless for non-Postscript device such as
inkjet printers.
Disadvantages of GIF
The biggest disadvantage of GIF (Graphics
Interchange Format) animation is that it is
difficult to keep the file size small enough to
transfer over the Internet.
Another disadvantage of GIF Animations is
that you cannot include sound with the image.
While GIF animations make good illustrations
for reports on your Web site, they cannot be
used to convey very much useful information.