Problem:
Let's say my client sends me a 4Mb JPEG file which needs retouching for a project. I open it in Photoshop, add a couple of simple adjustment layers, and save the image as a psd. The resulting file is now 65Mb. This waste of disk space is totally unnecessary, since all I've added to the image is a couple of adjustment layers. And if I'm working on, say, a magazine containing hundreds of photos, the amount of wasted space really stacks up.
Solution:
Whenever you open a JPEG in Photoshop, it appears as an 'embedded JPEG layer'. This operates a lot like a Smart Layer. You can apply effects to it, but the layer itself is not regarded as editable bitmap data (unless you rasterize it). Then, when you save it, the original JPEG remains embedded in its original JPEG format, so if you haven't added any raster layers, the file size should be only slightly larger than the original JPEG.