Photoshop layers are literally a way to layer (overlap) images. It is simply one image stacked on top of another.
The benefit of layers is that you can cutaway at a photo and overlay another photo on top to make a new image by combining the images.

Here is a step by step tutorial on how to view and create a layer.

1. Open Adobe Photoshop (CS3 or CS4).
2. Create a new image by pressing File, New. When the pop up appears, choose a width and height around 500 pixels each and press OK.
2. If you don’t have a layers popup window already visible, click Window from the top drop down menu and choose Layers (or press F7).
3. Click the Layers Tab.
4. On the layers window, click the icon that looks like a paper with a fold to insert a new layer.
** Note it’s very important to have this screen visible because the layer that is SELECTED is the one that will be modified.

You can create multiple layers and very intricate works of art. With many layers it can get confusing, thus there is a create folder icon next to the create layer. With this option, you can drag your layers around or into folders to help organize the groups of images on your file.