So I always see people baking their textures maps at twice the resolution of the final map they'll actually use, and then down res them before importing to the engine. I've always been under the impression that it's better to bake at the actual size to begin with, but with high quality settings and super sampling, so you'll avoid any loss of quality that may come with downsizing in photoshop.
It either of these methods the "correct" way to go about it?
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I've seen programers suggest that you should always render the correct size, as resizing in photoshop "does bad stuff" to your normals, but in practice with hundreds of bakes i've done, i've never run into any problems related to shrinking maps in photoshop.
The only explanation I ever heard for this is that Photoshop is meant to work with color, not actual polygon normals, so you might get weird averaged colors that correspond to messed up normal directions. I don't think this is something that anybody actually has to worry about the in the real world, though.
What dustinbrown said about texture painting at smaller sizes, I second that.