1 person found this helpful
The settings are saved as xmp metadata inside the jpeg/tiff. Note that while the settings are saved (and show up in Bridge), the settings are not actually applied until you actually process the images. So other 3rd party viewers won't see the changes. The embedded metadata is done safely and will not impact the file. The xmp metadata is also stored inside of DNG files as well. Only proprietary raw files force the use of sidecar files because ACR/Adobe treats them as read only files (it's not "safe" to write metadata in proprietary raw files since the formats are not documented).
As to limitations, since jpeg/tiff files are already rendered into a color space and gamma, those files are not "linear" and you will be limited in the amount of highlight recovery that can be done. Additionally, since the rendered files already have a white point the white balance is somewhat limited as well. Also, there are limitations to the Lens Corrections because ACR can't apply lens correction built for raw files in jpeg/tiff files. You can still use the manual corrections...
1. If I understand it correctly, with a raw format file you can throw away the sidecar xmp file and the raw file will be just like it was when taken with a camera. Since the xmp metadata is stored directly in the tiff/jpeg, after you close the file, are the changes permanent? Is there a way to reverse it back to the way it was prior to making the changes in ACR?
2. What do you mean by "the settings are not actually applied until you actually process the images."
What does it mean to process a tiff/jpeg? I thought only raw file formats are processed in ACR.