Fact: Raw files contain more information than jpg files. That's why they are much larger.
One advantage of a raw file over a jpeg is retaining detail in highlights (the lightest areas in a photo), that would otherwise be “blown out”, (lost), for example in a bright and contrasty sky with clouds. Note that raw files can’t be edited directly, so they automatically preserve the original (even if edited in Lightroom, or opened into Photoshop).
A jpeg image is 8 bit. This means 2x2x2x2x2x2x2x2 = 256. It has 256 shades of each colour, which is from white to black. That is a range of 8 stops of brightness. When a scene has larger range of brightness than a jpeg image can capture, you will lost detail in either the highlights, or shadows, depending on how your expose the shot.
A raw file is able to capture a much larger range of brightness. Raw files vary from camera to camera but are usually 12-14 bit. 12-14 stops of brightness. A raw file covering 12 stops of brightness has 4096 tones (2x2x2x2x2x2x2x2x2x2x2x2 = 4096) between white and black. A raw file covering 14 stops has 16,384 tones of brightness (2x2x2x2x2x2x2x2x2x2x2x2x2x2 = 16,384). Both of these are far more than the 256 tones in a jpeg file.
Yes, the files are much larger because they contain more information and yes, they require software and knowledge to process the raw files and also time to get the best out of them, so I accept that not everyone wants to do this For them, jpeg images are fine, but the point of this article is to inform about the differences. It's for you to decide if it's worth it for you.
The two sets of 3 images below, of the bird and the castle, demonstrate one advantage of shooting raw in a high contrast scene. Both images have very bright highlights and large areas of comparative dark.
Original unedited jpeg
High contrast images make it difficult (sometimes impossible, depending on the image and camera) for the camera to capture the detail in the highlights (bright areas), as well as the shadows (dark areas).
The light areas of the bird's feathers have lost visible detail.
Edited jpeg, made darker
If you try to darken areas where there is no detail, it can’t show detail that isn’t there. It will look similar to this, which is not good and not natural. The image lacks contrast and doesn’t look natural.
Raw image, edited
A raw image retains the detail, which can be brought out in editing, whilst importantly retaining a natural look. This is much closer to how you would have viewed the scene with your eyes (which can see a greater range of tones than cameras). An edited raw image allows you to achieve much closer to this.
Original unedited jpeg
High contrast images make it difficult (sometimes impossible, depending on the image and camera) for the camera to capture the detail in the highlights (bright areas), as well as the shadows (dark areas).
The light area of the sky has lost visible detail.
Edited jpeg, made darker
If you try to darken areas where there is no detail, it can’t show detail that isn’t there. It will look similar to this, which is not good and not natural. The image lacks contrast and doesn’t look natural.
Raw image, edited
A raw image retains the detail in the sky, which can be brought out in editing, whilst importantly retaining a natural look. This is how you will see the scene with your eyes and a raw image allows you to achieve much closer to this.
When a raw file is edited in Lightroom, the edited settings are saved either in a separate “sidecar” file, or within the raw file itself. The original raw file cannot be changed.
Shooting raw or jpeg is a choice. Raw files gives you greater flexibility compared to jpeg files, but there is nothing wrong, or inferior if you choose to just shoot jpeg.
Tip: When saving in Photoshop .psd format, leave the file name unchanged. Filenames have to be unique, but the file extension, (3 or 4 letters after the full stop in the filename), will change from jpg to psd, thus preserving unique filenames. In the future, months or years later, you can easily see which files are from the same image, which can be very useful.
Saving it in the Photoshop format will save all layers in your image and will ensure you can save it as many times as you like without losing any quality.