Inset Button

2) Now, hold SHIFT and draw out a perfect circle. The shape will automatically be put on a new layer.

3) Head to your Layers Palette (Windows>Layers) and click that little F at the bottom and select Bevel and Emboss. Apply these settings:

4) Now, it looks like a button but we want that inset! So, selection the Pen tool and right-click on your button. Select Make New Selection and apply the default settings. You should have a selection around your button. Create a new layer and name it "inset". Now, select a marquee tool, it doesn't matter which, and right-click on the selection. Click on Transform Selection and it should bring up a box around the selection with anchor points. Holding SHIFT+ALT, drag one of the corner points in a direction away from the circle. Only a little though, maybe one pixel or so. If you're wondering why you pressing SHIFT+ALT, I'll tell you why. SHIFT makes sure the transformation is perfect (i.e. square or circle) and ALT makes sure whatever you do to one side, you do the same to the other. Anyways, with the transform selection still in place, you should have something like this:

5) Head to your Layers Palette (Selection should still be in place) and place the "inset" layer under the shape layer.

6) Click the Gradient Tool (it will be under the paintbucket) and make sure you have these settings in the options bar:

Click to enlarge

8) Your final piece should look something like this: