Alright guys, let's start out by picking out a picture we want to use. Generally this effect works best with portraits, I've picked one I found off of my friend Callum's Photostream of his son, Oscar!
Right, now you're going to want to find a stock photograph of a Polaroid, for the purposes of this tutorial I've already grabbed one off of Stock Exchange
Cutting Inside the Lines
Sweet, now you're going to want to drag the photograph you've chosen onto the Polaroid picture and cut it out. Its generally a good idea to set the opacity of the photograph's layer to 50% so you can see what you're doing when you cut it out! You can either use the Pen Tool or the Polygonal Lasso Tool to cut this picture inside the frame. I'm going to use the Polygonal Lasso because it is simpler and easier- save the Pen Tool for a time when precision really counts.
…and hit delete. You can bring your layer back up to 100% now! This is where the real fun begins, dirtying up your photo! A good idea is to erase the borders of the layer a bit to make it look more natural.
Now we're going to want give this thing that authentic faded look. Start off by selecting your photograph's layer, and going to Image > Adjustments > Desaturate. Don't worry! We'll get a little bit of color on it later. Also go to Filter > Blue > Gaussian Blur and blur it by about 0.8, after all, cameras from the 50s didn't have nearly the precision or quality that ours do today. Also set the layer opacity to 80% and go to Image > Adjustments > Brightness/Contrast and set "Contrast" as low as you feel comfortable with.
Now, you've got just plain old black and white, another really good idea is to add a new Hue/Saturation layer over the entire document (make it very red) and then set it to Soft Light. and We're done!
Here is my final version with a background and a few other things.
I hope you enjoyed this tutorial!