Apply Image is one of those deeply hidden secrets of Photoshop. The menu item is usually disabled and it isn’t immediately apparent how to use the darn thing. Essentially, Apply Image is used to composite or blend two images, but it has other uses as well.
In order to use Apply Image, we’ll need two different documents that are exactly the same size: targetImage.psd and sourceImage.psd. The size is important, otherwise Apply Image will remain disabled. Select or create a raster mask in targetImage.psd. This is our main working file and where we will be using Apply Image. Drop any image you like into sourceImage.psd.
Images>Apply Image is now enabled under in the menu.
After selecting Apply Image, a new popup displays all kinds of options. The most important one for now is Source. The filename of your second document (targetImage.psd) should be listed in the drop down box; select it and click OK.
Your image is now a raster mask. This can be used to combine two different masks with various blend modes. If you don’t like the positioning or scale, just Undo it, scale/rotate the source image and reapply. One of the cool things about Apply Image is that it immediately converts your source into raster, so you can reuse the second document to rotate, resize or drop in another image without affecting all the other images you’ve applied. Apply Image can also be used on any raster layer to blend images, but I prefer to keep the images on separate layers for tweaking.
Two more bonus tips for CS6: “Create Clipping Mask” can be applied layers directly above a group, clipping that layer to the Group below. Groups can also have Layer Styles applied, causing everything within that group to take on the Layer Style.