OK first i'll try to explain what we'll be making. This is a widely used tehnique, called insets and what it actually does is makes a shape, line or text look like it's been carved (engraved) into the background. Take a look at the picture below:
As you can see, every object in this picture has a small white highlight that makes the shapes look like they're engraved into the background. This technique is widely used in button captions (eg. you can find it in skype's contact list names). The trick of making a thing like this is to create a black shape on a new layer, duplicate and invert the duplicate to white, then set the upper layer to
multiply and the lower to
soft light and finally offset the lower layer by 1 pixel. Sounds confusing, doesn't it? Not only that it's confusing, it's also very inconvenient. If you want to make a single shape inset, you end up with 2 layers... But recently i remembered that the same effect can be done with layer styles and this is what i'm going to explain in this tutorial if you didn't yet know it. The layer styles approach uses only one layer so every shape will be on its own layer instead of two. So first things first. Create some background or just copy the one below:
Now create a new layer and draw some
black shapes on it with the help of a custom shape tool

from the
tools palette:
As you can see, the shapes look pretty flat. Let's start defining our layer style. As i've mentioned earlier, the black shape should be set to multiply. So let's do that, set the layer's blend mode to
multiply. Now decrease the
fill slider to 30-40 percent. Here's what you should end up with:
And the final thing to do is double-click on the layer and add the following
drop shadow:
And here's the result:
You can draw some lines on the same layer to see how easily the inset effect is beeing created. If you need to do the same with another layer (eg. text), right-click on the already styled layer, select
Copy Layer Style and select
Paste Layer Style by right-clicking on a new layer you don't have styled yet. And there you have it - a very quick and easy way of making insets.