What is "psd"

It’s short for Photoshop Document - an editable document in native format for Photshop. In case, you don’t want to insert a PSD, you want to open a PSD, since . psd is file extension for Photoshop.

The main difference between PSD files and those saved in image exchange formats (.jpg, .bmp, .tif, etc.) is that in it you can save the file in high resolution with fully editable layers (layers). Information such as text/sources can still be editable even in another session, while in other formats this information is transformed into images.