Perched in the upper-left corner of your Layers panel is a pop-up menu of blend modes. You may have clicked it already and been startled by the number of items listed, which range from modes that darken everything to modes that lighten everything to modes that don't seem to do a darn thing.
Blend modes control how pixels on different layers interact with each other. For example, when layers overlap, the top one can either block the bottom one completely or the layers can blend together in some way (these effects, and many more, are shown in Figure 7-8). You can control exactly how they blend together by using blend modes. As you might imagine, they're worth their weight in gold when you're combining images, whether you're using them to produce a darker or lighter version (see Fixing exposure with masks) or joining up lots of different images to create a complex collage (as shown on Lighten Blend Modes).
Figure 7-8. Here's what Photoshop's blend modes do when you apply each one to this happy-face-and-water combo. It's hard to fully appreciate the special powers of blend modes from looking at this figure, but this gives you an idea of how they differ.
This section covers how to use blend modes to work with layers, but you can find other blend mode menus all over the place in Photoshop, including:
In the Layer Style dialog box, where you can add effects like drop shadows, ...