PhotoShop Tutorials:
How to Make Rounded Edges in PhotoShop

 

(shortcut keys are contained within the parentheses)

1.  Create a new window (Ctrl + N), creating any size window that suits your needs.

2.  Select the rectangular or elliptical marquee tool (M) and placing your cursor onto the page, draw whatever shape you like.

3.  Open the channels palette, then fill your selection with white.  Your layers will still be white at this point.  Don't worry, this will change in the end product.  Click on the "Save Selection as Channel" icon at the bottom of the palette.  Click on the "Alpha 1" channel, then de-select. (Ctrl + D)

4.  On the top task bar, click on "Filters", then on "Blur", then on "Gaussian Blur".  The higher the setting the rounder the edges will be.  A good starting point would be a 3 or 3.5 setting. You can practice with this setting to see how to achieve different effects.

5.  Select "Image", then "Adjustments", then "Levels" (Ctrl + L) and adjust the levels in toward the center until the edges of your selection look nice and clean.  Watching the numbers in the boxes as you move the levels, you might try these settings: 112, 1.00, and 144.

6.  Ctrl + Click on the "Alpha 1" channel in the channels palette to load the new shape selection into the layers palette.  Click on the "Layer" tab to go back to the layers palette, then click on the "Create New Layer" icon at the bottom of the Layers palette. Click on "Edit", then on "Fill", then fill the selection with your preferred color.  De-select (Ctrl + D)
 

You should now have a separate layer with your new graphic that has nice clean rounded edges!