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How to create torn edges in Photoshop

First you will need path to achieve this effect. Instead of drawing path in Photoshop it is good idea to copy and paste it from Illustrator. In Illustrator is possible to create path for torn edges with one only dynamic effect and here is how: (If you do not have Illustrator feel free to download shape for torn edges from here)
Start Illustrator and draw rectangle for example 640x480 with default fills. Then go to Effect > Transform & Distort > Roughen.
effect_torn_edges
In Roughen dialog experiment with values and set Pointe to Corner in bottom right corner of dialog.
I have applied this settings: 1% Size, Detail 10/in, Relative and for Points – Corner.
roughen_dialog
You can also apply Zig-Zag effect on top of roughen but in that case draw Rounded Rectangle.
 
Select shape with black arrow tool and go to Edit – Copy. Close Illustrator and start Photoshop. In Photoshop create new blank document. For Preset use Clipboard or any other. Then Paste clipboard content – Edit > Paste or Ctrl + V. Paste dialog will appear, choose Path and click OK.
paste_in_photoshop
Next step is to define new shape so you can use it at any time. Go to Edit > Define Custom Shape.. In Shape name dialog give name to the shape and click OK.
shape_name_dialog
Close file without saving and open the image where you want to add torn edges effect. Convert Background layer to normal because we are about to add vector mask to that layer and Background can not contain vector mask. Then choose Custom Shape Tool from Toolbox and scroll down till you find saved shape. Double click on shape to select it and close pop-up window.
choose_torn_edges_shape
In Options Bar click on Paths icon.
click_on_paths
If you want for example to have torn edges on left side and at bottom, click outside of image area on left side and drag to draw shape like so:
draw_rectangle
Choose black arrow tool (letter A is a keyboard shortcut), right click on image area and choose Create Vector Mask.
create_vector_mask
You can reposition vector mask at any time, click on vector mask on Layers palette to select it and with black arrow tool active click on image and drag to new position. Press Enter to confirm.
reposition_vector_mask
To make torn edges more realistic double click on layers thumbnail to open Layer Style dialog. Apply Drop Shadow and Stroke 1 pixel effects (try and to lower Stroke opacity to 70-85%).
layer_style_dialog
Here is example if Zig-Zag is applied in Illustrator along with Roughen.

One more tip: to get rid of transparent pixels go to Image > Trim and accept default settings.
trim_dialog
That’s it. Save the image as PNG or JPEG with Matte color of background on your blog or site from Save For Web & Devices and post it.

Reference:
Photoshop Help / Drawing shapes

Products used in this tutorial: Adobe Photoshop CS5, Adobe Illustrator CS5

Torn Edges 7130868120509579400

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