A .PSD file is a layered image file used in Adobe PhotoShop. PSD, which stands for Photoshop Document, is the default format that Photoshop uses for saving data. PSD is a proprietary file that allows the user to work with the images’ individual layers even after the file has been saved.
When an image is complete, Photoshop allows the user to flatten the layers and convert the flat image into a .JPG, .PNG, .GIF, .TIFF or other non-proprietary file format so it can be shared. Once a PSD image has been flatten by conversion, however, it cannot be converted back to PSD and the user can no longer work with the image's layers. It is important, therefore, so always save the .PSD file and not overwrite it during conversion.