How do you create backgrounds like this is Photoshop CS3 and incorporate it into a website?

Take a peek,

# 1

Load the image you want to use for your webpage background onto your computer. You can transfer this image from a digital source like a camera, SD card or Flash drive, or you can scan it in if you only have a printed version (it's better not to scan if you can avoid it).
# 2

Open Photoshop. Select "File" from the menu and click "New." In the new document dialog that pops up enter the "Width" and "Height" for the webpage background. This should be the same as the webpage it is for (generally 1024 x 768 is the best choice). Click "OK."
# 3

Select "File" from the menu and click "Open." In the dialog that pops up browse to the image you loaded in Step 1 and open it.
# 4

Select "Select" from the menu and click "Select All." Now select "Edit" from the menu and click "Copy."
# 5

Go back to the main document, select "Edit" and click "Paste."