This is simple, yet very cool looking when you're done. To begin with, simply open a new image to whatever size you'd like. I'm doing mine at 300x300 since this is just a tutorial. you can use any pattern/colors you'd like. I'm going to use one of the gradients I've made in the past. If you use a gradient, be sure to flood fill your image with it. Or if you choose a texture/pattern, then paste it into it. I'm going to do my gradient with 3 repeats so there's more to work with. To begin with, you should have something like this.

Now, in order to give it that pixelated effect we want, I'm going to go to Effects>>Reflection Effects>>Kaleidascope. Now I'm just going to play around with it until I get a pattern I like. Mine now looks like this

Now you need to go to Effects>>Distortion Effects>>Pixelate. Choose your size of pixels. I'm setting mine on 15 so I get this

Now go to Effects>>Edge Effects>>Enhance More so you get this

So now that you have your fading tiles, you can add brushes, textuers, or whatever you'd like to it. My finished product is this

Texture credit goes to Textures by Lee