To start with, we create a new document and add text to the canvas using a font and color of your choice. TIP: use a relatively bold-looking font for best results:
The next thing we want to do is goto the Layer menu, and choose Type > Convert to Shape. At this point, we will no longer be able to edit our text, so make sure it is as you want it.
You should now notice that our text has an untidy, slight border around it. This is the vector mask. To edit this, choose the Pen Selection tool:
Now make a selection around the whole word using this tool:
Now we have the whole word selected, we want to choose the following option in the toolbar for the Pen Selection tool: Exclude Overlapping Areas:
Now click on an blank area to deselect the whole word, and with the Pen Selection tool still active, simply drag and position each letter where you want it. Notice that the overlapping areas are cancelled out:
And if you wish to rotate or transform each letter, you can choose the Edit > Transform Path > Rotate (etc.) to modify further:
Finally, you can add a Layer Style to your new creation to make it look even better:
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