PSD vs PNG: Source File Versus Final Export
PSD and PNG aren't really competing formats in the way most comparisons on this site are — they represent two different stages of the same workflow. A PSD is Photoshop's native, fully editable working file; a PNG is a single, flattened final export. Confusing which stage a given file is meant to represent is where most of the actual confusion between the two comes from.
PSD: everything Photoshop can do, preserved
A PSD file preserves the complete editing structure of a Photoshop project — every individual layer, layer masks, adjustment layers, blending modes, text that's still editable as text, and more. This is precisely what makes PSD the right format while active design work is happening: nothing is locked in, every element can still be individually adjusted, moved, or removed. The cost of preserving all that structure is file size — a PSD with many layers is often very large compared to any single flattened export of the same design, since it's storing the entire editable history and structure, not just one final rendered image.
PNG: one flattened result, nothing more
A PNG export takes that layered PSD and flattens it into a single image — one grid of pixels representing how the design looks at that moment, with all the layer structure, editability, and Photoshop-specific data gone. This is exactly right for the design's final destination — a website, a printed piece, a shared image — where nobody downstream needs to edit individual layers, they just need to see the finished result.
Why you can't skip the PSD stage
Once a design is flattened into a PNG, the original editability is gone — you can't extract the original individual layers back out of a flattened PNG, adjust one specific element without affecting the rest, or recover the original text as editable text if it was flattened as pixels. This is exactly why keeping the source PSD file matters: if you only save the PNG export and later need to make an edit, you're stuck redoing significant work from scratch rather than adjusting the original layered file. The PSD is the thing you keep and keep working in; the PNG is what you hand off once you're done.
A practical way to think about it
Treat the PSD as the permanent, editable master file — keep it, back it up, and always return to it for future changes. Treat each PNG (or other flattened export) as a disposable, single-purpose output generated from that master whenever you need one for a specific destination. If you find yourself repeatedly re-creating design work because you only kept the final PNG, that's a signal to start preserving the source PSD going forward rather than treating the export as if it were the working file.
Once you have your flattened PNG export ready for its destination, Compress Image handles reducing the file size for web use without a visible quality loss, and the image converter covers converting that export into whatever other format a specific destination actually requires.