I was just asked again what an XCF file is and if she should use this file instead of something else. I believe I have covered this before but I will cover it again for those that may be new or missed it.
An XCF file is a Gimp image file and you can only open it (currently) with the Gimp program. If you are familiar with Photoshop, XCF is Gimp's equivalent. What makes an XCF file special is that you can save your work in layers and including any guides, masks etc. you have added.
Do you save as a PSD or an XCF? That's for you to decide. I usually save as a PSD so I can swap the image between different programs, as well as the fact that ACDSee (an image organizer and viewer) can translate a PSD into a thumbnail. I did find that an XCF file does save faster and at a slightly smaller file size. I have not seen any quality difference between the two.
What do I mean by swap? For some reason I like the Gimp text tool so much better than Adobe's. I don't do a lot of text on a path (meaning I leave most of my text in a straight line), but I like adding layer styles to the text. If I save as a PSD then open it back up in Photoshop, I can add the style to the text layer. Use this with caution as some layers will apply to a layer and other layers will vanish, but this is rare with Photoshop - not so rare with Gimp's script-fu. To get around this you can save that layer as a separate image and edit it, save, import back into image. How? In Gimp layers dialog box click on the text layer, then in the image box select Edit>Copy, Edit>Paste As New. Save image. Edit in Gimp with script-fu or open in Photoshop and add your layer style.
What is a layer style? Layer styles are like Gimp's script-fu's. They are a single click transformation of your shape or text. You can make something look like glass, metal, neon... choices are endless. With a layer style you don't see the steps used to create the effect. Photoshop also has actions which are like layer styles but with more creativity and actions allow for editing several layers at once, depending on the action used. Elements does not use actions, only the Creative Suite line. So now when you are reading a PS tutorial trying to interpret it into Gimp you'll know what they are talking about. As of right now Gimp cannot use Adobe layer styles or actions like they can some brushes and filters.
Filters? Filters are awesome. When you have time to play with these, you should. Filters are a set of quick commands given to the program to edit an image. Filters by themselves might not have that wow effect until you learn that in Gimp and Photoshop nothing is limited, you can keep pushing the limits until you created what you wanted. I use filters all of the time to enhance a photo with layer modes. If you have a photo open right now try this quick trick as an example. Copy your image in the layers dialog box. Click on the new layer (called selecting layer), and in the image box click on Filters> Artistic> Photocopy. Now you should have a cartooney black and white image. Click on Mode in the layers dialog box and change the setting to overlay. Interesting right? Now try this: click in the image box Layers> Transparency> Color to Alpha. Default is set to white, leave that and click ok. It should have removed all white from that layer and now you have different results.
As I said... Limitless. Now go have some fun!