The following comes from Click it Up a Notch great site for all things photography.
All text below in BLUE are hints and tips from me. The rest is from Trisha Hughes.
How to make a watermark in Photoshop
1. Open Photoshop and create a new document by going to File>New.
Now is when you decide the size of your watermark. If you are only watermarking web images, I recommend sizing the new document to the size of your web size files. My blog uses 900 px x 600 px images. If you plan on watermarking full size images, I would recommend making your initial file 2500 px by 2500 px for a high resolution watermark that can be used on full size images. So, I typed in my blog image size dimensions into the document, and set the resolution to 72 (for high resolution, I would recommend 300) and clicked OK. So start with 2500 px x 2500 px and go ahead and make yours 300 resolution, make the background Transparent.
2. Next, you can either pick out your fonts or copy your logo over onto the new document.
I use a couple of different fonts for my logo, so I went ahead and typed out my watermark. Use black as your color. If you want a multidimensional feel, you can use other shades of gray. If your watermark is colored, go ahead and convert it to grayscale before moving it over onto your new document. At this point you can open your current logo file. Drag the layers into this file, then Transform (Ctrl+T) so the logo is bigger. Make sure it’s your black version logo.
As you can see, I typed my logo the entire width of my image. I made it larger than the size that I’ll actually be using so that the quality isn’t compromised if I choose to use it larger than the “norm” for me. If you plan on using the same size every time, you could make it the size that you want it to appear on your images here. Just remember, you can always make it smaller without it becoming pixelated, making it larger is where you will run into pixelation problems.
3. Grab the Marquee tool and draw a rectangle around your watermark.
4. Next go to Edit>Define Brush Preset. Name your brush and click OK.
When the widow open up. You can rename the Brush Preset to what you want it to be named.
5. Your new brush will be in your brush catalog.
I like pictures, but you can also click the little box and show file names. This may confuse you later, if you don’t the names of each brush you might leave it in picture mode.
You can decrease the opacity of the brush or change the color. Easy peasy. Now watermark those images!
Save this file as Watermark Creation PSD file to your Photoshop folder.
Turn off of the layers within this file and repeat the steps to create a Signature Watermark using your signature file.
Adding the watermark to your images will take place tomorrow.