By creating Layers you can stack different elements of your image, or modifications to it, on a series of virtual sheets that add up to create the final image, as if you had stacked a series of film slides together in a projector.
Layers give you the freedom to experiment while preserving the integrity of your original image. They also allow you to quickly go back and adjust one particular modification that you made to your image (such as a piece of text that you added) without having to modify or recreate the entire image.
Related Topics:
How Image Menu Commands Affect Layers
How the Color Dropper and Magic Wand Affect Layers