I have a newer version, but the way I do it is to click "window" on the top toolbar....then click "layers"....this will show the layer history.
Assuming you have your cake photo open...
Click the "T" typing tool and write whatever your watermark will be in the font you want it.
when you finish....locate the layer you just made in the Layer history window. Click on that layer. Then, from the tool bar on top, click on "LAYER" and then check off "bevel and emboss" and slide the opacity level to about 30 or 40...depending on what you like. This should make it look like a watermark. Cliuck ok to close that window.
For a true watermark, you need to flatten the image so that anyone else with photoshop can't just remove the layer....but, really, anyone that savvy will be able to remove your watermark manually anyway.
I hope this helps.....Photoshop has an online help site, too.
maybe this will help...just a reference guide:
http://www.bsu.edu/web/ucspubs/pdf/pselements/MacPSElementsQuickRefGuide.pdf
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