In this tutorial, I'll teach you how to make layers in PSP7. (it should work for any other program that has layers enabled...) An example of when you could use them is when you sketch an image, and want to clean it up, easily.

Okay, so lets make a really rough image as a practice thing. I recommend changing the color to grey, and use the 1 pixel paintbrush. Here's the sketch I made:

Now, look for a Layers button. Click on it, and a drop down menu should appear. There should be an option that says "Create New Layer". Click on it, and click OK. (the other things are optional, like renaming your layer, ect...) The new layer is usually calle something like "Layer1". Make sure you are on that layer..
Choose the color of your choice for an outline. I chose black. Now carefully draw on top of your sketch to clean it up, using the grey lines as a guide. Mine looks like this:

You should see parts of the grey sketch behind the outline. No problem. Return to your main layer, by clicking on "Layers -> Background". (its usually on the bottom, and caleld Background Layer or something. Click for an example)
Use the floodfill tool and fill the background layer with white. The grey lines should be gone now, leaving you with a clean image.

Although its optional, you can add color to your image by coloring ONLY in the background layer. When you color on that layer, the outline wont be affected, because its not on that same layer.