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DPP does not recognise Photoshop Elements at all. The "Transfer to Photoshop" will be greyed out if DPP did not find Photoshop (the full Photoshop) on your computer at the time of installation. (In any case, the Transfer to Photoshop sends the image to Photoshop as a TIFF - a very big file - but that's irrelevant to you).
DPP has the annoying workflow method of requiring you to save your edited Raw as either a TIFF and/or a JPEG, rather than just letting you open it later in Photoshop as an edited Raw file. There are some options for saving - you can make some corrections and saved as an 'adjusted' CR2 (a record of DPP's editing will be embedded in the CR2) but if you're going to be editing in Elements your best bet is to go for "Convert and Save" and choose "Exif TIFF 8-bit" for top quality or Exif Jpeg for smaller file.
Personally, I found that opening a Raw in Elements (with an up to date Adobe Camera Raw) was a much more intuitive way of working - and that, of course, would open the modified CR2 directly in Elements.
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