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The first time I opened a raw file in Photoshop CS3, after taking some photos in raw with my Canon EOS 450D DSLR, I totally understood the value of having an image taken in raw format.
To compare what I got in raw and jpeg formats, I took a picture in RAW + JPEG. This is provide by Canon for passionate photographers who perhaps do not want to spend time to convert all their raw images themselves, but wanted to keep that vital raw information, that serve similar as a film negative in storage.
So what is the big deal about the raw format and why we get default jpeg images on our memory cards? A raw format file is not a photo or even an image. It is a file that contains and keeps all the data necessary to create an image plus all the meta data that goes with it such as camera model, date and time taken, ISO and more.
When we take a picture, the camera's sensor is exposed to light as at the time of the shot with the selection made by the photographer at the time, such as white balance. The camera has a built in raw convertor that automatically process this information and save them as a jpeg file in the memory card. This process is irreversible and any information lose to make the compact jpeg file is lost forever, taking away from the photographer the opportunity to correct any mistakes later.
A raw file is that opportunity to access that pure data exposed to the sensor at the time of the shoot. A raw file is the data as it was, pure and untouched. By opening a raw file in Photoshop CS3, Camera Raw plug in starts and within seconds the image data such as white balance, temperature, saturation and highlights can be altered to produce an amazing results that would take hours, if at all posible to achieve via any image manipulation programme using the jpeg file.
Shooting in raw also has an extra hidden advantage of having the opportunity to use future improvements in colorimetric conversion which are not still available or known. Something like processing a film negative with newer technology that would create better results.
In the above picture, in left hand side I have my shoot in jpeg format and in the right hand side, the converted shoot using a raw format and Photoshop CS3 Camera Raw.