One of Photoshop's features is layers. Layers help you edit and manipulate a digital canvas in a constructive way that precludes you from making permanent changes to the original file. (Layers are also a feature in many of Adobe's other programs.)
From Adobe Photoshop 7's help:
Layers allow you to work on one element of an image without disturbing the others. Think of layers as sheets of acetate stacked one on top of the other. Where there is no image on a layer, you can see through to the layers below You can change the composition of an image by changing the order and attributes of layers. In addition, special features such as adjustment layers, fill layers, and layer styles let you create sophisticated effects.So you can hide and reveal layers, use layers to apply effects to your image, and use layers to merge images and/or elements together. In the image below, of a layers palette in Photoshop 7, you'll notice eye icons. Those eyes indicate layer visibility. When you click the eye, and it goes away, the layer does too. When the eye is there, it means the layer is visibile. The locks indicate that the layer is "fully locked." That means the layer cannot be edited. (The layer can be unlocked, and then edited.)
Photoshop allows you to use thousands of layers in one file. Your computer's memory may restrict your attempts to reach the software's maximum, however.
Layers are one of Photoshop's greatest features. Play around with them so you can maximize your artistic potential!
Photoshop Layers 101 Photoshop Tutorial, PhotoshopCafe
Understanding Layers in Photoshop, Digital Photography School
How to Merge Layers in Adobe Photoshop, eHow