If you want your text to look like it is cut or etched out from a surface in your image, here's how.
I would practice on a larger image at first As this doesn't always turn out right with small icons. Mine is 300 x 425 px. Preview
Click the text tool and type in your text; select the font and size you'd like then click "Apply." You can "Create As" either Floating, Selection or Vector in the Text Tool Palette.
If you create as a vector, resize further then click on the "Selections" menu and click "From Vector Object" (or press CTRL + Shift + B). Then from the "Layers" menu press "Delete."
If you selected Floating text select "Delete" from the "Layers" menu as well.
If you selected "Selection" for your text you don't need to do anything but you must make sure you click EXACTLY where you want the text because you cannot move the selection. Preview
From the "Selections" menu click "Promote to Layer" (or click CTRL + Shift + P). If you mess up you can always delete and this allows you other customization on your original layer. Preview
Next click on the "Effects" menu and select "3D Effects." From there click on "Cutout." A menu will popup and I would suggest using vertial offsets of 2~4 for vertical and horizontal each, black for shadow colour, 100% opacity, 4~8 for blur and deselect "fill interior with colour." Click okay. Preview
Now, click "Effects" "3D Effects" and "Drop Shadow." Add a white drop shadow with a 0_` blur, `00% opacity and vertical and horizontal offsets of 1 each. You can leave your image like that or go on to make it look slightly more realistic. Preview
With the text still selected, click the Floor Fill button, the little bucket. Change the opacity to something low, between 10 and 25. Next, open the Foreground colour box (make sure is it active) and use the colour dropper to pick a colour from the surface you're working on. It should be slightly darker than the surface itself so you can pick a colour then go dark in the colour wheel area. I picked a brownish grey. Click "Okay." Preview
Use the Flood Fill to colour your text slightly darker than the surface. Afterall, real cutout text would be slightly darker, right? Voila, realistic-ish looking cut out text. Preview
I find this technique doesn't work so well with icons so I will resize them larger (around 300 x 300 pixels) add the cut out text and then size them back down.
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