Photoshop can do both vector and bitmap image processing. However, when you import Photoshop vector shapes into InDesign, you will find that the vector path information is lost. As a result, any text that you have created in Photoshop, will become rasterized when you import into InDesign and can lead to low quality prints.
The best way to avoid this situation is to save the original Photoshop image as a PDF file instead of PSD.
However, you should remember that saving as a PDF causes Photoshop to discard layer information. Hence, when you add or remove layers from the original file, it might not reflect in your InDesign document. Again, the best workaround for this is to use Illustrator .ai files. Layer information is preserved in .ai files much better.
In the following example, we see that there is no loss of information in the imported PDF file as the vector information is preserved, when the file is saved as PDF in Photoshop.
