When you first choose the Edit in Photoshop command in Lightroom, starting with a raw file, one of two things will happen. If your version of Lightroom and your Camera Raw plug-in are synchronized, which they should be, the default behavior will be for Lightroom to hand off the raw file to Photoshop for rendering into RGB (Fig. 2).
When Lightroom hands off that raw file, it also hands off all your nondestructive Lightroom settings along with it. Photoshop relies on the Camera Raw plug-in to render the raw file into an RGB color space, incorporating the Lightroom settings. So any adjustments that you've made get baked into the new RGB pixels. Once it's rendered, an RGB file opens in Photoshop, and you never even see the Camera Raw plug-in. On top of that, I'm calling the file that's created a "phantom TIFF" file because when it's first opened into Photoshop, it hasn't really been saved anywhere yet. It's just a bit of smoke and mirrors that only exists in a Photoshop cache somewhere.
At this point, you're free to play with your photo in Photoshop to your heart's content. Create some layers, add some filter effects—anything you like. It's only when you finally save that a new TIFF file is created. Photoshop names this new file using the original raw file name, adding "-Edit" to the end of it, to indicate that the new file is indeed an edited file. Then, one more thing happens right at the moment when you save. That new TIFF file becomes a member of your Lightroom catalog. It's auto-matically imported for you (Fig. 3).
So that's the basic round-trip. You've just taken a raw file, applied some Lightroom settings to it and gone on a round-trip to Photoshop and back. You now have a new RGB TIFF file in your Lightroom catalog.
That's path number one. Remember, I said this would be the default path if your version of Lightroom and your Camera Raw plug-in are synchronized. If they aren't synchronized—which happens to almost all of us at one time or another—when you choose Edit in Photoshop for a raw file, Lightroom gives you a choice (Fig. 4). In this case, Lightroom throws up the Compatibility Dialog, asking if you'd like to render the RGB file using Lightroom or to "Open Anyway." The choice is pretty easy. But, of course, the outcome may be a little different, depending upon which path you take. If you choose the "Render using Lightroom" option, it will be Lightroom that creates the RGB file this time, baking in your Lightroom adjustments as the RGB is being rendered. Of course, the benefit of having Lightroom do the rendering is that you're absolutely, positively guaranteed that what you see in Lightroom is what you'll get in the RGB TIFF.
Also, the moment the new RGB file is rendered, it's imported into your Lightroom catalog, whether you make any changes or save it in Photoshop at all. It automatically becomes part of your library, and then Lightroom just hands that new RGB file off to Photoshop for editing.