Knockout options let you specify which layers “punch through” to reveal content from other layers. For example, you can use a text layer to knock out a color adjustment layer and reveal a portion of the image using the original colors.
As you plan your knockout effect, you need to decide which layer will create the shape of the knockout, which layers will be punched through, and which layer will be revealed. If you want to reveal a layer other than the Background, you can place the layers you want to use in a group or clipping mask.
To reveal the background, position the layer that will create the knockout above the layers that will be punched through, and make sure the bottom layer in the image is a Background layer. (Choose Layer > New > Background From Layer to convert a regular layer into a Background layer.)
To reveal a layer above the background, place the layers you want to punch through in a group. The top layer in the group will punch through the grouped layers to the next layer below the group.
To reveal the base layer of a clipping mask, place the layers you want to use in a clipping mask. (See Revealing layers with clipping masks.) Make sure that the Blend Clipped Layers As Group option is selected for the base layer. (See Group blend effects.)
To view blending options for a text layer, choose Layer > Layer Style > Blending Options, or choose Blending Options from the Add A Layer Style button at the bottom of the Layers panel menu.
Select Shallow to knock out to the first possible stopping point, such as the first layer after the layer group or the base layer of the clipping mask.
Select Deep to knock out to the background. If there is no background, Deep knocks out to transparency.
If you are not using a layer group or clipping mask, either Shallow or Deep creates a knockout that reveals the background layer (or transparency, if the bottom layer is not a background layer).
Lower the fill opacity.
Using the choices in the Blend Mode menu, change the blending mode to reveal the underlying pixels.