A PSD cannot be viewed by anyone without Photoshop or a compatible editor. AVIF gives the smallest files of any widely supported image format. PSD is at home in work-in-progress designs with layers; AVIF is the usual choice for the smallest images for websites.
The defaults suit most files. Under Options you can set the quality, aim for a target file size and resize the result.
The PSD is converted as one flattened picture, with its layers merged; files with more than 8 bits per channel are not supported yet. The AVIF encoder is a WebAssembly module that downloads the first time you convert to AVIF and is cached afterwards.