• "Text Tool" is used to add / type text inside a photoshop file.
• For adding text to a PSD file, Open a new or an existing .psd document.
• Add your text to the document, by selecting your Type tool from the Tools palette, or press T in the keyboard.
• Whatever typed using the text tool will be the layer name by default.
• With the type or text tool selected, you can set the font, size, color from the options bar at the top of the screen.
• To edit the text, one has to select the text tool again.
• For example, here we have used the text tool, to add texts "green","orange" in different layers with different colors.
• Choose a color for your text using Photoshop's Color Picker.
• Adding text to a PSD file is much easier with this type tool.

Video Tutorial: