This is a great effect and one that many people don't know how to do. And the bonus is that it is easy!
Make a new image in Photoshop and type D to set the colors to default.
Type your text, using a bold font. Mine is Showcard Gothic at 80 pt.
Open the image you want inside the type. I'm using a waterfall photo. You can right click to download it to your hard drive if you want to use this one.
Switch to the move tool by typing V then click and hold the photo, and drag it to the text image an drop it. Position it as you want. You should now have three layers in the text image: the background, the text and the photo.
Make sure the photo layer is active (click on it in the layers palette to make it active if it isn't). Type command/control +G and the image is masked to the type. Use the move tool to drag it around if you need to reposition it.
If desired, you can finish it off by selecting the text layer in the layers palette and adding a drop shadow.
©2003 Sara Froehlich and Northlite Designs
Good Thunder, Minnesota