In PSE, this is called masked type
The Horizontal Type Mask tool and Vertical Type Mask tool create a selection in the shape of text. This is great for when you want to create the digital equivalent of cutting letters out of patterned paper or even if you want to cut letters out of a photo. Try this effect using a dingbat font to create your own unique page accents. This is also a good technique for creating monograms.
Open the file containing the patterned paper you want to use. Here I used a yummy paper from Gina Miller’s Esmerelda paper pack.
Right-click on the text tool so you get the text-tool menu. Select the Horizontal Type Mask tool or the Vertical Type Mask tool .

Select additional type options (like choosing your font and weight), and enter your text. “Fat” fonts are especially good ones to use.
The screen will appear red to indicate that you are using the Type Mask Tool

As soon as you finish typing your text and click somewhere else in the image, the red background will go away and you will have “ants marching” marquee effect around your letters.

Next, you want to create a new layer containing only your new “die-cut” letters. Right click somewhere in your image to get the selection menu, then select “Layer via copy”. This will create the new layer.

Then you can copy that layer into the file where you are working on your layout. If you want to save it, be sure to save it as a .png file so you preserve the transparency.
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