When you open a raw file in PS, it first gets presented in ACR. There, you can set the colour space you want to assign to the demosaiced image. Adobe RGB is a good default, you might think about changing it to ProPhoto, as long as you work in 16 bit mode in PS. You can also select sRGB there already.

sRGB is the smallest of the three, followed by Adobe and ProPhoto. Working in a wider color space means you have more extreme colours available. But for final output, you may have to convert it down, as most output devices can't cope with those wide spaces! For web use, sRGB is generally still recommended, as a common denominator.

When you then continue to PS, where your working space is evidently configured to be sRGB, you can either

• convert the image down to the working space.

  This would be a suboptimal solution. If you want to restrict your image to sRGB in edit, do so already in ACR, as stated before.

• use the embedded space.

  This in effect means to ignore the default of PS and switch the working space to Adobe RGB for this image.

• discard (ignore) the embedded profile.

  This is the worst, and probably wrong option. Your image will be represented with wrong colours, not at all like you painstakingly finetuned it in ACR!

So, in summary, work in the same color space you produced from ACR, and mind the final space when you save as eg. JPEG.

For printing, the final step is usually soft-proofing, where you display the image converted to the color profile of your printer and adjust it so it looks as good as possible under its restrictions.