For this tutorial I chose a piece of denim. I took this image from my favorite stock site, sxc.hu. This particular image is located here. If you were to resize this image and repeat it in it's ‘virgin' form, you would be able to see the edges, and it would be quite ugly.
First, determine the resolution that you want your image to repeat at. For this I chose 200×200. I took the huge piece of denim (2304×1728) and cropped (C) out a decent 200×200 chunk.
You will then want to make the image double your X and Y resolution. Don't stretch the image though. Go to Image | Canvas size and enter the values. make sure that you click the upper left corner option.
Press OK. Now duplicate the layer (Ctrl + J) and move the image to the right so that the two are right next to each other. Do this two more times so that the entire canvas has the four images right next to each other with no gaps and no overlaps. Now flatten the four layers into one (Ctrl + E).
Now for the fun. First, select the Clone Stamp tool (S). Second, we want to select where we will be copying from. Hold Alt+Click the area we want. For this we will want an area in the middle of one of the four images. This area will be farthest from the edges of the images, which are what we are trying to get rid of. Now that you have a starting area selected, normal click one of the seams. Drag the cursor along the seem and it should start to copy the good denim over the bad seem. Pause every now and then to Alt+Click another nice piece of denim. You will want to get all of the seems near the center of the image, and almost to the far edges of the image.
If you make any mistakes, undo what you last did and try again. Using the clone tool is tricky, especially if you are new. Once you get a decent image you will want to resize the canvas back to the dimensions we started with. Go to Image | Canvas Size, again, and type in the normal values. This time we will want to resize from the center.
By resizing to the upper left corner than to the center, what was the edges of the image to start off with is now the center of the image to end with. Blending the images together with the clone stamp tool while we had the four images allowed us to fix the edges; something impossible without making the four images.
Now we create the pattern. First, select the entire layer (Ctrl+A). Then go to Edit | Define Pattern. Obviously give it a name having to do with the contents.
Press OK. This is now added into Photoshop's list of patterns. If you want to use the patter on a layer, right click on the layer and select blending options. From that box you can select pattern overlay, and then select your pattern from the list.
(Originally written in 2007 using Photoshop CS)