Somebody sends you a PSD and asks you to “have a look”. You double-click it and nothing useful happens, or something opens it and shows a flat image with none of the parts the sender was describing. The confusion comes from a category error: a PSD is not really an image file at all.
PSD stands for Photoshop Document. A JPG or PNG contains one grid of pixels — the finished picture. A PSD contains the construction of a picture: every layer separately, the masks that hide parts of them, the adjustments applied on top, the text still editable as text.
The difference matters practically. Open a JPG of a poster and you can edit the pixels. Open the PSD and you can change the headline’s wording, move the photograph behind it, turn off the colour grading and put the logo somewhere else — because none of those things were ever merged together.
That last item explains the common experience of opening a PSD and seeing the finished design but none of the structure. You are looking at the preview.
A JPG stores one image. A PSD stores every layer at full size, plus the masks, plus the flattened preview. A poster with thirty layers is roughly thirty images in one file.
Compression exists but is lossless and therefore modest, and smart objects make it worse in a useful way — an embedded original is carried at its full resolution so it stays re-scalable, which is the point, and costs what it costs.
A working PSD in the hundreds of megabytes is unremarkable. The format caps out at 2 GB; beyond that Photoshop uses PSB, the “large document” variant, which is the same idea without the ceiling.
Several programs read PSDs, with an important caveat: how much survives depends on the reader. Layers and masks are generally interpreted. Smart objects, newer adjustment types and text rendered with fonts you do not have are where things degrade — text in particular tends to come through as pixels or in a substituted typeface.
If all you need is to see the design, the quickest route is to convert the PSD to PNG or JPG. That takes the flattened composite and gives you an ordinary image anyone can open.
The rule underneath all of these: the PSD is the master, the export is the delivery. Export as often as you like; never replace the PSD with its own export.
Flattening a PSD and saving over the original destroys the work, not just the convenience. Once the layers are merged there is no undoing it — the separate elements are gone, the text is pixels, the adjustments are baked in. A request to “make it smaller” is a request to export, not to flatten and save.
The same applies to the opposite direction: converting a JPG to PSD does not recreate layers. It produces a PSD containing one layer, which is a large file with none of the advantages.