The PSD format is the native graphic format of the image editing software Adobe Photoshop. The PhotoShop Designated File is a lossless graphics format that stores much more information than pure image data. Among other things, information about layers, masks, paths as well as alpha channel information and vector elements are saved.
Adobe Photoshop is the standard program for professional image editing. Therefore, the main application of the PSD format is the exchange of data between designers, designers, etc.
When opening a PSD file, there can be problems, since the PSD format is not 100% backwards compatible. Each new version of Photoshop has new features that result in new data that can be saved to the PSD file.
Older Photoshop versions may not understand this data. But you can also save the PSD files with maximum compatibility to make them more readable for older Photoshop versions. However, under certain circumstances, the data of the new functions will not be saved.
In addition to Photoshop, there are of course a lot of other graphics software PSD files can read more or less well. For example, the free graphics editing software GIMP can read PSD files and, for example, also recognizes the layers, but unfortunately not the type of layer. A text layer becomes a normal layer, which can then no longer be edited in GIMP using the text tool. Other programs require a plugin for reading PSD files.
In general, it is recommended to always save PSD files with the compatibility option for further processing in other applications.