This is basically the same thing as  Faded Tiles BG it's just teaching you to apply it to a graphic like so. We're gonna be using this picture. It's really not that hard to do.
Open up your program. This should be fairly translatable to any program but I'm not sure.
1) Open up a new image and size it to how you want. I'm doing mine 450x300.
2) Paste the picture into it and size like so

3) Now take your selection tool and select this portion

4) Edit>>Copy
5) Edit>>Paste as New Layer and then right click to get rid of the "dancing ants"

6) Now you want to Image>>Mirror so it flips that one little piece like this

7) You'll want to feather the left edge now. Basically you're just blending. If you don't know how to blend then see this tutorial. You'll need to line that piece up better if it's like mine.
8) After you've feathered it, slide it over to the picture so it looks like part of it and merge it down.
9) Repeat 3 through 8 until you have this

10) Take you freehand selection tool and set it on point to point.
11) Select your image like this

12) Crtl+h>>10 pixels>>OK
13) Selections>>Promote Selection to Layer
14) Get rid of your "dancing ants"
15) On your promoted selection, do a Gaussian blue at an 8 radius.
16) Effects>>Distortion Effects>>Pixelate. Make sure you have the little box that says symetrical checked and set your pixel size to 17. Now you should have this

17) Effects>>Edge Effects>>Enhance More

18) They all turn out different. This one is harsher because of the way the background is. It's a lot of steps but easy one you get it down! Play with it and have fun. This is how mine turned out...