PSD stands for Photoshop Document, which is the native file format used by Adobe Photoshop. It allows users to save images with multiple layers, enabling complex editing and manipulation without losing quality. This format supports various features like text, vector graphics, and effects, making it ideal for professional graphic design. When working with a PSD file, users can easily edit individual layers, adjust colors, and apply filters. This flexibility is essential for designers and photographers who need to make precise adjustments. Photoshop can also export PSD files to other formats, such as JPEG or PNG, for easier sharing and use.