Good question. A "PSD" file is a PhotoShop Document file. It's a file that Photoshop uses for itself to store all of the information about your image including the layers, colors, etc. It's only viewable in Photoshop. It is NOT viewable in a Web browser or other graphics program for example. A JPG file (or JPEG) is a universal, standard image file. It is viewable on a Web page, and you can send it to other people who don't necessarily have Photoshop. A JPG is a "bitmap" file just like a BMP or GIF file. Basically, when you're working with an image in Photoshop, save it as a PSD file. When you decide you want to send that image somewhere else (email, web, etc.) then you export it as a JPG or GIF.