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ICO is a file format used to store icons on Microsoft Windows. It supports images of various sizes and color depths, and it can contain multiple images within a single file, allowing icons to be displayed in different resolutions and color depths depending on the user’s settings. While ICO files are essential for creating application and file icons in Windows, they are less commonly used for other purposes due to their specific functionality and limited support on non-Windows platforms.

PSD stands for Photoshop Document, and it is the default file format used by Adobe Photoshop, a popular image editing software. PSD files support multiple layers, allowing for rich image composition and editing. They can store an image's individual layers, text, masks, transparency, clipping paths, and other settings, which are all editable within Photoshop. This format is widely used by graphic designers, photographers, and artists for creating and editing complex images and digital art.