A 12 bit RAW file contains 68 billion colours, I know, that's a lot more than your standard red, green and blue JPEG format! When a camera captures using JPEG format it takes a slice from the highlights, mid-tones and shadows, processes and compresses it into a smaller file. However when an image is shot in RAW format it captures every piece of information in sees, making it raw unprocessed data.
Unfortunately RAW files are not visible when imported into a computer and must be converted into another format such as JPEG or opened in specialist software such as Photoshop. RAW format files allow a photographer to have more freedom within the images and adjust basic features such as exposure, contrast, clarity and saturation.
RAW file (unedited/ unprocessed image)
Edited RAW image
Camera RAW is software within Photoshop that allows basic processing before it opens. The Histogram graph in the top right hand corner shows the range of tones in the image. It is better to make adjustments that spread out and stretch the histogram as it is easier to work with. if the histogram is tight, it usually means the image is either under exposed or over exposed.
Screenshot of camera RAW software