What's the Purpose of .PSD Format?

Culled from the Help File of Photoshop CS ....

" Photoshop format (PSD) is the default file format and the only format that supports most Photoshop features besides the Large Document Format (PSB). Due to the tight integration between Adobe products, other Adobe applications like Adobe Illustrator, Adobe InDesign, Adobe Premiere, Adobe After Effects, and Adobe GoLive can directly import PSD files and preserve many Photoshop features. "

You can certainly edit in other file formats, but if you use Layers the image cannot be saved as a jpeg or a gif without flattening it - for serious digital imagers this is a disadvantage.

 

Absolutely right - when you save to jpeg image data is discarded by the compression algorithm and is recreated when you open the file. Multiple saves discard more image data, some of which may be original, some recreated - hence a gradual deterioration of image data. For best results save as jpeg once and use the highest quality (lowest compression) compatible with the file size you prefer - and the end use of the jpeg. The images on my web site are all 50k or less at 50 upwards quality and suit that purpose admirably. In PS those same files, albeit for a much larger image size (A3) are 50 - 200Mb each.

Tiff or psd (if using Photoshop) is the way to go if you anticipate multiple editing sessions with a final save to jpeg to reduce file size and enable universal viewing capability as an image file.