Both raw images and archive images (PSDs) should be stored locally as well as remotely. Raw images are images which have been scanned but not yet edited and archive or final PSD are images which have been edited.
It is important to keep the PSDs in a safe place. Locally they should be stored on one or ideally two mirrored hard drives.
CDs and DVDs aren't a reliable backup media. They will deteriorate over time and might not be readable in a few years.
If storage space is a problem, the PSDs can be compressed with eg. 7-Zip. In most cases this gives a size reduction of almost 50%.
For more information on mirroring two hard drives see this howto.
Hard disks will eventually fail. It is highly advisable to have additional off-site backup on an Internet storage service (a.k.a. “in the cloud”).
Most storage services can be used via their website interface for simple upload/download actions, but for realtime sync operation it is necessary to use client applications, eg. Mega for Windows, Mega for Mac, Google Drive for Win/Mac