A PSD file is an image file that is associated with Adobe PhotoShop. A PSD file is a layered image file that allows work to continue on each layer even after it has been saved. Files saved in PhotoShop are in the PSD format by default.
Once a user has finished working on a PSD file on PhotoShop, he can save it as a different image file format, such as JPG or TIFF. A PSD file that has been converted into a flat image file, however, may not be converted back, removing the user's ability to work on its multiple layers.