Can't export (edit original) to photoshop. Can't open puppet files in PS
Dan Tull commented
The most common cause of this is a Photoshop installation issue that causes PSD files to not be associated with it properly. If you right click the puppet and choose "Reveal in Finder/Explorer" (Mac/Win respectively) and double click the artwork file, does it open?
If not, you may need to set the association or re-install Photoshop to fix that part. Character Animator just delegates to the operating system to open the associated app, so if double clicking does open it correctly, I have more sleuthing to do to figure this out.