Using Blending Options
-by OGT

First, you need to open the Blending Options. Right click on your desired layer and choose Blending Options. Voila! Your blending options:
....to.....

Ok, this is the Blending Options (the right half has been cut off)
Remember, click on the NAME of the effect for more options for the effect.
Now, a short description of each:

Drop Shadow: Makes a shadow of the layer. You can customize shadow color, distance, size and other things

Inner Shadow: Creates a shadow inside the edges of the layers, makes it look like the layer is beveled, or cut out.

Outer Glow: Surrounds active layer in a glow. You can change the color, color type, size, spread, etc etc.

Inner Glow: Same as the Inner shadow, but with the same effect as the outer glow.

Bevel and Emboss: Give the active layer a "3-d" look.

Color: Gradient, Pattern Overlay: covers the entire layer with a color, gradient, or pattern.

Stroke: Outlines active layer.

These are just basic descriptions. The key to Photoshop is experimenting! Just screw around until it looks cool and to your liking:

Examples of Blending Options: