A PSD cannot be viewed by anyone without Photoshop or a compatible editor. WebP is smaller than JPG or PNG at similar quality and keeps transparency. PSD is at home in work-in-progress designs with layers; WebP is the usual choice for images on 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 WebP encoder is a WebAssembly module that downloads the first time you convert to WebP and is cached afterwards.