This technique produces a very specific effect but, through the power of Photoshop, can be adopted in a variety of ways. To start out, I first found a free stock image of paint peeling from a surface at stock.xchng.

This image works well for this effect because there is a sharp, distinct edge on the paint chips to differentiate them from the surface they are peeling off of. What's more, the surface is very light but also has a subtle texture, which will hold the image we place on it very well. (If you'd like to follow along with the same image, you can get the 113Kb PNG version of it here. The sample above is compressed will be harder to work with later on in the tutorial.)

To begin, create a new layer on top of the background image. Add large, black text to it.

Set the text layer's blending mode to Multiply.

Create a new layer on top of the text layer and rename it "color". Turn this layer into a clipping mask.

Now select the brush tool. I used a standard round brush with a 0% Hardness, Normal Blend Mode, 100% Opacity, and 25% Flow. Really, these options depend more on personal preference but what's important is the foreground color. Make sure that whatever its hue, the color you pick is not too dark and not too light. For now, I would suggest just picking a basic "red" or "green", etc. With the "color" layer selected, paint over the text on your canvas.

Notice how because of the clipping mask, only the text (on the text layer) is affected by the color (on the "color" layer). What's more, because the blending mode of the text layer is set to Multiply, the texture from the background image shows throw the text once color is applied. This not only helps the text look more a part of the original photo but also gives us a clearer idea of where the edges of the paint chips lie underneath it. (Even if you're not with me at this point, continue to read on and check out the next set of images, as they often speak louder than words. )

Finish coloring the text. At this point, you can experiment with the color, ensuring that it's not so dark that you lose the background texture, and not so light that the text is hard to read. (Of course, I only suggest these things as a means to accurately follow this tutorial I've laid out, where artistic license allows you to experiment and decide how this technique should really be used )

Next, you should create a layer mask for the text layer. A quick way to do this is by clicking on the icon as indicated in the below image.

Now zoom in to ~300% and set your foreground color to black. Select the brush tool and select a *important* small round brush with a 100% hardness and 100% flow. In the layer palette, make sure that the layer mask for the text layer is highlighted specifically, and not the text layer itself. Begin painting the text that is floating on top of the paint chips and watch it disappear.

Make sure to get close to the edges of the paint chips. Continue until you are entirely finished masking the text so that it appears as such:

And that's it. The specific images I used may not be practical for your desired applications, but the technique is fundamentally about using layer masks and blending modes to blend separate images together seamlessly. Feel free to PM me if you have any questions.

To turn a layer into a clipping mask, highlight that layer in the layer palette. Then select Layer from the menu bar, and then Create Clipping Mask.
A layer mask is essentially a grayscale layer that corresponds to the opacity of the layer it's masking, where if any pixel is 100% white in the layer mask, the same pixel in the layer that it's masking is 100% visible. If the pixel is 0% white (black), the same pixel in the layer that it's masking is 0% visible. 50% white (gray), 50% visible, etc. If the layer mask of layer A is completely black, layer A is completely invisible. This allows one to "erase" much of the layer as if using the eraser tool, but allows the "erased" pixels to be retrieved by simply coloring them white again in the layer mask. Layer masks are editable just like normal layers, but are always grayscale.