These patches are made on embroidery machines that use a variety of stitches to render the design.
I assume that you don't have any problem creating your design in Photoshop and are looking for a way to add the stitching texture.
You have two options. Once is to create you own stitching by hand. This can be just as tedious and time consuming as actually sewing one and scanning it, but it can be done. Start by making each of your colors on a separate layer and adding an embossing style effect, then flatten the layer to "lock" in the effect and add another layer above the color layer to add "stitching" with a small paint brush. Apply embossing to these stitches to give then shape and blend this layer with the color layer to add your texture.
Another method would be to put a layer of 50% gray above the color layer and set the blend mode to "overlay." Then use the burn and dodge tool to add the look of threads to the layer below.
The other option is to find some good samples of embroidery that you can use as texture maps. Search images using your favorite search engine's advanced settings, looking only for very large images. Here are some that I found that you can use to get you started:
http://www.emblemworks.com/zencart/index.php?main_page=index&cPath=45.
You can find other samples as well. You can cut and paste from these and adjust the color, you can use them to create some texture maps, or you can use the "healing brush" tool to sample the texture and apply it to the area you are working on.
Give it a try and let me know how it works out.
BTW, I don't know of any simple action that applies stitching to a section. Perhaps someone else knows of one. Perhaps you'll make one yourself and make lots of money.
