You can create shapes with the Pen tool (esp. custom shapes), or you can use the Shapes tool.  Photoshop isn't as advanced as Illustrator when it comes down to this, but it isn't supposed to be either.  Shapes are essentially vector based objects.  This means you can enlarge them without losing any quality (unlike bitmap 'photos').

There are lots of reasons you can and will use shapes as a graphic designer so it's important to understand them.  The balance of vector and bitmap and how to work with both elements are important in your Photoshop education.  You can use Shapes (vectors) in many different genres or styles of design (create your own).

You can create shapes as fills by using the marquee tools, lasso or pen tools.  You would create a selection and then "fill" it with color.  Usually the faster way is to get comfortable with the Shapes tools (U) on the toolbar (towards the lower right).  Here you can quickly create new shapes or lines in the forms of ellipse, rectangles, polygons, lines, rounded rectangle (in the latest Photoshop version) and custom shapes.

On the shapes tool you can see options in the options bar (no kidding) where you can choose all kinds of different shapes that you can use.  You can even load more pre-fab shapes that Photoshop has provided, import or create your own.  Simply drag your mouse (while clicking) to determine the size and aspect ratio of the shape (whichever shape you have chosen).

Try out the different shapes; parrots, stars, the restroom man and women, you name it.  Please note that they will be "filled" with whatever color is your foreground color.  The important thing to remember is that you have to be aware of what option you have chosen; your choices being:

1. Shape Layers (left)

2. Paths (middle and selected in the image above)

3. Fill Pixels (right)

Shape layers are simple because every time you drag to create a new shape, it will put it on it's own independent vector based layer.  I recommend organizing them in a layer set because they can add up quick on your layers palette. 

When you have the Paths option selected, every time you create a new shape it will add it as a Path to the paths palette.  This stores them easily and out of sight (of the layers palette) but you will then have to convert it into a normal layer (create new layer) and fill pixels anyways.  The advantage of the creating paths from shapes is that you can modify (edit) them with the pen editing tools (move the predefined anchor points) to deform the current shape into your shape.  Foreground color doesn't matter here because you're creating a technical work path shape.

With Fill Pixels you will fill pixels with your foreground color onto the currently selected layer.  Make sure that you create a new layer for your fill pixel shapes.  It's up to you to determine when to keep making new layers for your shapes (if you have lots of them).  If you don't do anything, shapes will go onto the "normal" layer you currently have selected (and can't be used on shape independent layers themselves).

You can add layer effects and lower opacity and fill on both fill pixels and shape layers.  Basic Photoshop video tutorials thoroughly cover the use of shapes layers and creating vectors and fills (and also gets into how they play into design).  You can also check out a tutorial on shape layers here.

- Article by Orion Williams copyright 2004