In Camera Raw7.3 there is (at the bottom) a switch depth 8/16 bit. Which one should I choose when working with Raw images? I have Canon powershot s110 at the moment.
That 8/16 bits option is there to choose the format of the file sent to the editor after setting the various sliders in the ACR dialog. Everything which is made in ACR is done in 16 bits. Working in 16 bits very important at that stage. When you are in the editor, the type of edits which really need 16 bits have already done in the conversion process in ACR. You can edit in 16 bits in the editor, but without layers and you lose many tools. In that case, you have to convert to 8 bis in the editor to get the layers and tools back. (Menu /image / mode).
My advice is to do a clean conversion within ACR and set the export to the editor in 8 bits by default.