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- See the Wikipedia article at Color depth.
Early computer monitors had "single bit" color depth—the pixel was either on or off. Color monitors allowed more vibrant displays, but color depth was still limited. 8-bit displays (which were similar to Indexed color mode), allowed up to 256 colors to be chosen from a wider range. 16-bit displays advanced this further, using 5-bit (32 levels) Red and Blue channels, and a 6-bit (64-levels) Green channel.
24-bit color depth (8 bits per channel) allowed for images to sufficiently resemble real life, so much so that monitors do not go beyond this depth. (32-bit modes in monitors actually use 24-bit depth, with the extra eight bits unused.) The JPEG image format uses 24-bit color depth. PNG image format can use 24-bit depth, as well as 32-bit depth, using a fourth 8-bit channel for transparency.
Though output devices are capped at 8 bpc, input devices such as cameras and scanners can go beyond this. The RAW format used in cameras often uses the maximum color depth available. The extra depth allows for more rigorous editing, without the eventual loss of image data that occurs in 8bpc images.
Colour depth in PhotoshopEdit
By default, Photoshop uses 8-bit channels for editing. Version 2.5 allowed for 16-bit channels, with full adjustment and filter support completed by CS. Version CS2 introduced 32-bit channels and features to take advantage of high dynamic range imagery.
In general, color depth should not be decreased until the image is ready for export.