Smart Objects are one of the most powerful and versatile features in Photoshop. Using a vector illustration as a Smart Object gives you even more flexibility. The Smart Object is edited non-destructively, so even though you'll be creating a distressed, weathered effect, the nice, clean vectors will remain preserved in the original.
My new course on Tuts+, Getting Started with Smart Objects, ventures in depth into using Smart Objects. This tutorial is simply a taster of the potential you can achieve.
1. Place the Smart Object
I'm starting with a badge I created in Illustrator. This graphic contains vector objects, plus live type. The word "smart" has a Warp effect applied to it. The benefit of using a Vector Smart Object is that the objects, text and any effects are all preserved, and the graphic can be scaled to any size without loss of quality.
There are a couple of different ways to place a vector graphic as a Smart Object in Photoshop. You can go to the File menu in Photoshop and choose Place. Any artwork you choose with be automatically placed as a Smart Object. Or you can simply copy the vector artwork in Illustrator, then paste it into your Photoshop document. When you paste, you'll have the option to paste as a Smart Object:
Depending on the size of your vector and the resolution of your base image in Photoshop, you may have to transform the Smart Object to fit it to your photo. Use the bounding box to scale the Smart Object, then press Return or Enter to commit to the transformation.
You'll now see the Vector Smart Object in the Layers panel.
2. Decay the Image
With the Vector Smart Object layer selected, click the fx icon at the bottom of the Layers panel and choose Blending Options.
In the Blend If section, move the Underlying Layer slider to the right. This will allow some of the darker parts of the texture in the Background layer to show through the Smart Object layer.
To fine-tune the effect, hold down the Option (Windows: Alt) key to split the slider. Moving the right side of the slider will allow more medium-value areas to show through.
Keep making adjustments until you are satisfied with the amount of "decay" in the image. Your image should look something like the example below. You can always open the Blending Options again and make adjustments.
3. Add Dimension
Duplicate the Background layer by dragging its thumbnail to the New Layer icon in the Layers panel. You can also press Command-J (Windows: Control-J).
With the background copy layer selected, go to Image > Adjustments > Threshold.
Move the slider until you see some solid areas of black. Each image will be different, but we'll be using these blacks for shadows in the final image, so keep that in mind.
Hide the Smart Object layer. With the Threshold (Background copy) layer selected, go to Select > Color Range. Choose Shadows from the drop-down menu. A small preview of your selection is shown. Depending on your particular image, you may not be able to see it very well, but the white areas in the thumbnail will be selected.
Create a new layer above the Threshold (Background copy) layer. You can hide or delete the Background copy layer, but keep the selection active. Optional: Name the new layer "Shadows". Go to Edit > Fill. Fill the selection with any color.
Deselect, then apply a Blur filter to the Shadow layer to soften it. The Blur More filter is probably enough.
With the Shadows layer selected, click the fx icon and choose Inner Shadow. Adjust the light source to match the light in your photo. Choose a fairly small Distance and Size.
With the Shadows layer still selected, change the Fill to 0% in the Layers panel. This will hide the colored fill, but the Inner Shadow effect will remain visible.
Drag the Shadows layer above the Vector Smart Object layer.
We want the shadows to fall on the vector graphic only. Otherwise, they'll look too heavy on the rest of the image. Select the Shadows layer in the Layers panel, click the flyout menu and choose Create Clipping Mask.
4. Edit the Smart Object
Now that the effect is complete, you can edit the Vector Smart Object for a different look. Double-click its thumbnail in the Layers panel. A message will appear. This is simply reminding you to save the Smart Object after editing it. You can turn this message off if you prefer not to see it again.
The Vector Smart Object will open as a new .AI file in Illustrator. Notice its name—this is a copy of the original Illustrator file. Any changes you make here will not affect the original Illustrator file—it is simply a link back to the Smart Object in the Photoshop file. Once you save and close the Vector Smart Object file, return to Photoshop to see your changes updated in the PSD.
The Vector Smart Object can be edited infinitely, without loss of quality. Experiment with different color schemes and type styles.
Congratulations, You're Done!
Once you memorize these steps, you can turn any vector illustration into a realistic, weathered mural using versatile Vector Smart Objects. For more details, see my Tuts+ course, Getting Started with Smart Objects.