|It's best to choose an image that involves fog or smoke for this effect|
Now hold Ctrl and click on the layer with the transparent image. A dotted line should outline the image you've selected. Right-click on the image and then select Save Selection. Name it whatever you like but since I'm using a car for this tutorial I'm naming it Car.
|This will allow you to edit the image colours|
Clicking on the Channel will activate it so that only it is being edited.
Next, hold Ctrl and press I to invert the Channel. We'll be adding a Gradient to this now so select the Gradient Tool from the sidebar and press D to change the foreground colour to white. Now, open the Options Bar and select the Foreground to Transparent option (the second from the top left).
|This will add transparency to the image|
|Note how it fades near the back of the car|
While this panel is open, click on the drop down beside the hand and choose blues and drag the Saturation slider to the left. This will desaturate the colour along the gradient you've applied so that it gets fainter the further away it is.
|See how the back of the car is more faded|
|If you have more than one Hue/Saturation layer, delete the other one as there should only be one|
|Make sure that only the solid colour layer is added to the group|