Look at RAW as a Digital Negative. There is no in camera compression or "pping" if you will. Raw allows you to have much better control in terms of PP and image recovery than if you shot in JPG. Takes up more space but its more forgiving in a nutshell. Im sure someone will add to this with a more detailed description.. its just been an exhausting day...

The RAW format is the unedited data that comes out of your camera when it converts the analog signal from your sensor to digital. It doesn't have red, green or blue color channels yet. There are exceptions but the vast majority of cameras operate this way because they use a color filter array overlaid on the sensor. Each pixel location corresponds to red, green or blue but full color doesn't exist at each pixel yet. Interpolation takes this array of red, green and blue values and creates three separate images which are the final red, green and blue you see in your jpeg.

Since that step hasn't been performed on the RAW file yet, you can still adjust white balance (the balancing of the three color channels to ensure the color temperature of the camera matches that of the scene).

The RAW file also has advantages over the JPEG because it stores many times more data. For example, a 12 bit RAW file uses 2^12 gray levels to describe each pixel. That's 16 times more than an 8 bit JPEG has. The advantage of this is that you can recover more detail from the scene, slide exposure around a bit in RAW conversion and render smooth and gradually changing areas of tone better without posterization. It also allows you to make better use of the cameras full dynamic range as a result of all this.

I'd say that besides the above, RAW data is like an undeveloped digital negative. The original JPG, when shot with no/minimal in-camera processing is like a (developed) digital negative. One of the oldest arguments for RAW is that processing/'developing' software will continue to improve, and ever more pixel detail will be usable over time every time the RAW file is developed.

Good question, don't feel bad asking stuff like that.

The above pretty much covers it, there's also a thread floating around with people's different preferences, might be of interest.

To me:
RAW = Color Film Negative (developed, ready to print).
JPEG = Chromes, done out of the camera, for good or bad...

Originally Posted by rhayes

So far, I have not been able to open RAW in PS (CS3)... I must be doing something wrong. I think I will try again.

Make sure that your ACR (Adobe Camera Raw) is updated.

Can't you just drag the file and drop it on CS3, thats what I typically do and it works.

Originally Posted by thechickencow

Can't you just drag the file and drop it on CS3, thats what I typically do and it works.

Normally, yeah, but if ACR isn't up to date (Adobe has released several updates this year alone, AFAIK), it won't read the file.