Start by creating a new document that is any size you would like with the resolution set at 72 dpi. "File --> New". A bigger document works best. I would create one that is 16" x 20".
Using the text tool, type in the text you want to fill. Make the text black and use the character palette to change the text so it fills the new document. Use a big, blocky font. It will look best when finished. You may have to choose "Impact".
With your new text on your new document, highlight the text and change the color of the text to white. It is going to disappear. Once you have changed the text to white, you need to raterize the text. That means to change it to an object. Here is the path, "Layer --> Rasterize --> Type". Last step here is to create a black stroke around your text so it comes back to life. Use the "Layer Styles" icon on your layers palette.
Now, open the picture you want to paste into the text. You will need to use the crop tool and resize the picture so it will fit into the text. I would crop the picture so it is about one inch wider and one inch taller. Once you have cropped the picture, choose "Select --> All" and then choose "Edit --> Copy". OR If you do not want to crop the picture, just use the "Retangular Marquee Tool" and draw a box around the part of the picture of want to use. Choose, "Edit --> Copy" to place the picture on the clipboard so you can use it later.
Now go back to the new document with your text. Hold down the "Apple" key and click the mouse one time to select the layer that has the text on it. (OPTIONAL: Next choose "Select --> Modify --> Contract". Choose 2 or 3 pixels. This will give you a clean white line around your picture. A nice touch.) With the layer selected, choose "Edit --> Paste Into". You should now see your picture inside your text.
You can now go back to the layer styles and play around with the different options to make the text stand out. The examples I used in class where, Pattern Overlay and Bevel and Emboss. The choice is up to you.
Here is an example of the finished product and the layers palette.