Drop Shadows in Photoshop
Dropshadows add contrast to objects, and add depth to an image. They can increase visibility, and improve readablility. However, if used inappropriately drop shadows will look cheesy.

This text has no dropshadow. It has little contrast from the
background, and appears flat.
1
Creating Dropshadows using Layers
This shadow is soft, yet it ads a lot of contrast to the text, due to it's large surface area. This shadow can be created in any version of Adobe Photoshop.
To create this drop shadow:
A) In the Layers
window, hold down Ctrl, and click on the layer you
want the shadow applied to. In this case, it's the text
object ABAC. This will load the layer transparency.
B) Create a new layer
, and drag it under the layer you want the dropshadow on. Double click on the new layer, and name it Small Shadow.
Press D on the keyboard, to ensure the selected foreground color is black. Fill the selection Alt+Backspace, and then deselect Ctrl+D.
C) Now, Gaussian Blur the Small Shadow layer 3-6 pixels, to create a nice ambient shadow around the edges.
Filter > Blur > Gaussian Blur...
3-6 pixels
D) Drag the
Small Shadow layer onto the new layer icon
,
to create a duplicate of it. Double click on the new layer
(Small Shadow copy) and rename it Large Shadow.
Gaussian Blur the Large Shadow layer by about 20
pixels.
Filter > Blur > Gaussian Blur... 20 pixels