If you use Photoshop for your digital photo editing then PSD is probably the most important file format that you need to know. A PSD file is a Photoshop file format and is your best option when working on digital photos for two main reasons. First of all, PSD files allow the user to work in layers and channels and save work being done without compressing the layers. This of course usually results in a large file size. Secondly, PSD files do not lose image quality as you work on images because there is no compression when the file is saved resulting in lost data. It is always best to save your work as a PSD file until your image is finished and then you can save into the format most appropriate for your project.
JPEG, which stands for Joint Photographic Experts Group, is one of the most common and well known file formats. JPEG files are good for web use as well as a variety of applications due to their small file size. Due to compression JPEG images loss data (image quality) each time change the file is saved.
GIF, or Graphics Interchange Format, is a popular file format for web use and other Internet applications. These files are typically small in size and load quickly in Internet browsers. GIF files are limited to a maximum of 256 colors.
TIFF, or Tagged Image File Format, are high quality images but are not really used that often and are not good for Internet use.
Although there are more file formats than we have listed here these are the formats you will want to use in your Photoshop photo editing projects. For the most part, the only formats you will use on a regular basis are PSD, JPEG, and GIF.