I get a lot of questions about this whenever I use it in a video or in a wip process example, so I thought I may as well go over it in a bit more depth. It feels like something simple, and is very easy to use once you get the hang of it, but I never know how confident people are in PS so it might be helpful. Shouldn't go around making assumptions.
Enjoy! And hope it helps.
I'm working in Photoshop CS3 here.
Keyboard shortcuts should translate fine, just substituting ctrl for ⌘.