This is something I discoverd how to do the other day, and I thought I would share it with everyone. I have Photoshop CS2, but I've been told this should work for elements as well. I'll also explain clipping masks, which is called 'group with previous' in elements. Here's a before and after picture of the effect.
Steps:1. Open a new document (any size) with a transparent background.
2. Create a type layer and type your text. It doesn't matter the color if you're going to cover it with paper.
3. Open your chosen paper and drag it over the text layer. Make sure the paper layer is on top.4. Select 'layer' then 'create clipping mask' (element's users: click 'layer' then 'group with previous'). At this point you can move the paper around, resize the paper, and see what looks best.
5. Once you have the paper the way you want it, select 'layer' then 'merge down'.
6. Now find the layer in the layers palette (it should be the only one). Hold down the ctrl key and click on the thumbnail for the layer. This will put "marching ants" around the outside of the letters. 
7. Go to 'select', 'modify', and 'contract'. I like the very outsid edge to be darker, so I use 5 pixels in the 'contract selection' box. You can try different things at depending on what you want.8. Now choose 'select' and 'feather'. Again, you can enter different pixels amounts depending on what you want. I usually use something between 5 and 25.
9. Go to 'select' and 'inverse'. Then create a new layer in the layers palette or go to 'layer', 'new', and 'layer'.
10. Select the brush tool and make sure the color is the one you want. You can use any color you want. Make the brush fairly big to make it a little easier to get all the edges.
11. Run the brush right across the letters (it should only show up in the area that is selected around the outside of the letters).
12. Do step 7 two or three more times, except select 'expand' rather than 'contract' and select a slightly larger pixel amount (around 15 pixels). Do steps 7 through 11 two or three more times. Also, adjust the opacity and flow on the brush; lower it by about 20% each time.13. Finally, do steps 4 through 5 again. Push ctrl+d to deselect the area. You can drag the whole thing onto any other page now using your move tool.
This doesn't just work for letters. It also works for shapes and you can ink the edges of photos as well. I know there's a lot of steps, but after you've done it a couple of times it's actually fairly simple.
