As a graphic designer, layers are one of the most fundamental and important aspects that you must understand.  In Photoshop, you can't create graphic design without layers.  Basically, a layer is an independent element; a part of the design.  Great graphic design is a harmony of all of it's layers (and other effects) made in a deliberate presentation.

It is important to understand that a layer is an independent element.  Many designs may only have a few layers and some designs may have 100 layers or more (yikes!).  A layer can be made up of just about anything.

Visualize your layers palette from an eye-level horizontal view (which shouldn't be hard for us visual people) where each layer is stacked on top of the other layers.  If you keep creating new layers, you will keep stacking invisible layers on top of each other.  A layer will contain pixel information after you do such things as create a color fill, drag in a layer or selection from another image, copy and paste (which creates a layer of that pixel information). 

When you drag in layers from other open documents with the move tool, you are copying that 'layer' onto the new document and adding that layer to the image.  You can also create layers from selections containing certain pixel information that you want onto its own layer.

In this image you can count and figure that there are 8 layers including the 2 color fill layers of yellow and maroon.  Note that the text/logo layers must be on top of the construction, color and party people layers in the layers palette.  The main text was rasterized and 3-D transformed and strokes applied to the logo box and date text.  Each of the text 'copy' is on it's own layer.  Remember that layers are the independent elements in any design so you can work on them separately and move them where you want, change their order, lower opacity, apply filters, adjustments, transformations, etc. to each of them.

Layers are located in the layers palette.  Here you can change their order, opacity and add layer effects; even create layer sets.  The iPSDirectory & Flyer Series is perfect for understanding layers and how they fit into real design in Photoshop because you can actually interact with real .psd files and turn the layers on and off, change their order and start to understand how important layers are and how they fit into an overall design.

Layer order is an important thing to understand also.  A layer's location in the document is told by it's position in the layers palette.  By dragging a layer's position up or down you can put it further up or down on that horizontally viewed "stack of layers".  Some layers may completely hide layers beneath it (because the pixel information covers the entire width and height of the document) so you have to be aware of layer order.  You can also hide layers by clicking on the eyeball to toggle on and off from view.

Layers also have a powerful feature called a layer mask.  This allows you to hide pixels instead of erase them.

- Orion Williams copyright 2004