Hi Guys, welcome to first post of this blog. Just for clarification this blog is about design not specific software like photoshop, illustrator so tutorials will be focused on design methodology. So lets start. This design is made with Adobe Photoshop CS5
Use Following properties Inner shadow, Outer glow, Inner glow, Gradient Overlay
Type text you desire and give darker shade of color from background. Special thing of this button is use of Inner shadow property it will give the effect that text is merged with background.
Make a shape of circle. make it transparent and give inner shadow property this is normal state of the button.
Duplicate the button and give background color to the shape and can be used as hover state.