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What's the industry standard application used for designing webpage PSDs? Photoshop? Dreamweaver? This is solely for creating a design in PSD format, not converting to HTML/CSS.

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PSD = PhotoShop Data file. If you want to create PSDs, you will need Photoshop.

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What application do most designers use to design websites?

There is no standard. In fact, many designers don't even use one specific app. It's usually a combination of raster illustration software (Photoshop, Pixelmator, etc.), vector illustration software (Illustrator, Inkscape), wireframeing tools (Balsamiq, Axure, etc), text editors (Coda, Xcode, the list goes on and on), CSS frameworks (bootstrap, etc), JS libraries (jQuery, etc) and any other number of various applications and code libraries. The combinations are nearly infinite.

What's the industry standard application used for designing webpage PSDs?

This is an entirely different question. The standard application for making a Photoshop file is...Photoshop. It's not the only app that can create a photoshop file, but it's pretty much the only one that does it reliably so if you need photoshop files, there's really no other practical solution other than Photoshop.

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The industry standard is to code in an IDE. There is no industry standard for designing a full site in PSD because if you're trying to design to be responsive you would have to design for every viewport and the time it would take you to do it you could have developed the entire site in code.

I would suggest using Photoshop or Illustrator for the wireframe mockup to figure out where you want images and text:

enter image description here

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Bear in mind that on larger projects everything you design has to get approved by multiple stakeholders on the client side, sometimes including legal and compliance. So while getting client approval on PSD for desktop version and executing responsive states as you see fit is a streamlined solution, it is not suitable for every project and Photoshop remains the tool of choice for larger web design jobs.

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