1. Start off with a new image 400x400 pixels. Make the background black so that you have more contrast when using white font (what I recommend). Make a seperate layer from your background and type your text into this layer. Name this layer: text. Be sure to use a font that is defined, sharp edges and simple shapes. Image fonts to do work well with this technique. Be sure to also set the font to sharp or crisp.

2. Now, duplicate the text layer and name the new layer Mosaic. Select the Mosaic layer and go to Filter > Blur > Gaussian Blur. Set the radius anywhere from 3.5 to 4.5, whatever suits your needs. Since you are transforming this text layer into a shape now, click OK when it asks if you want to rasterize.

3. To achieve the ultimate effect for this tutorial, select the Mosaic layer and go to Filter > Pixelate > Mosaic. Set the size from 10, but no bigger than 14.

4. The pixelation looks very blurry and doesn't have defining properties, to fix this we need to sharpen the edges. Go to Filter > Sharpen > Sharpen. Repeat this a couple of times until you feel the blocks' edges are dark enough. To finish the tutorial, we want our text to also look defined, so click the Text layer and go to blending options and choose Drop Shadow.

5. Here is something I made using this technique, I hope you enjoyed this tutorial. Any questions you have will be answered in the forums. Thanks!