PHOTOSHOP 6
Make a new layer, fill with paint (I used white) and then choose Filter..Other..Ditherbox. You will see the above panel. Choose New. Choose the size of your repeating image (I did 8x8). Pick your paint colour with the eyedropper and click on the little grid to make your design. When finished click Fill.

PHOTOSHOP 7 / CS
Adobe removed the dither box, so, an alternative is to open a new canvas say, 8 x 8 px, and zoom right in until you see individual pixels. Using the pencil tool, design your pattern in the pixel squares. Then Select All and Edit...Define Pattern. Then on your layer for your image choose Edit...Fill...Pattern...Choose the pattern you just defined, usually the last thumb-nail.

From: Karen Jack
Ditherbox is available to PS CS, you just have to install it.
To find the Ditherbox filter, open the Goodies folder on the Adobe Photoshop CS CD.
Inside the Goodies folder is a folder called Optional Plug-ins.
Inside this folder you will find a folder named Ditherbox .
Copy the Ditherbox folder to your plugins folder. Copy the others while you are there if you like.
Ditherbox will now be available in Filter\Other\Ditherbox the next time you start Photoshop.