Step One

OK, first off we create a canvas - mine is 200*100 pixels - and make the background white. Now I made a nice gradient background to offset the button - once this is done (on the background layer) create a new layer to start on.
Step Two

Next, using the rounded rectangle tool (u), in paths mode, drag out a rounded rectangle with a 5px radius, encompassing about half of the canvas, as shown.
Step Three

Now, head off to the paths tab, and ctrl+click on the path to make it a selection - now on you’re new layer fill it in white (colour doesnt really matter as a gradient will go over it). You should now have something like that shown.
Step Four

Now, we need to apply some layer styles to our rather dull-looking button, use these settings:
Drop Shadow:
Blend Mode: Multiply
Color: BDCDDD
Opacity: 50%
Angle: -90
Distance: 5px
Spread: 1px
Size: 6px
Contour: Linear
Anti-Aliased: Yes
Step Five

Inner Glow
Blend Mode: Normal
Opacity: 60%
Noise: 0%
Color: BEC3C5
Technique: Softer
Source: Edge
Choke: 0
Size: 6
Contour: Rounded Steps
Range: 50%
Jitter: 0%
Step Six

Gradient Overlay
Blend Mode: Normal
Opacity: 100%
Gradient: DBDBDB –> Transparent
Reverse: No
Style: Linear
Align with layer: Yes
Angle: 90
Scale: 100
Step 7

Stroke
Size: 1
Position: Outside
Blend Mode: Normal
Opacity: 100
Fill Type: Color
Color: B7C3CD
Step Eight

Now, duplicate that layer, and on the duplicated layer, change the drop shadow angle from -90 to +90 - this makes the button look a lot more balanced (we’re not going for realistic here!)
Step Nine

Now whilst this step is completely optional, I think it makes the button look a *lot* better - create a new layer above the previous ones, and using the gradient tool, and white–>transparent gradient, ctrl+click on the button layer, and draw from the bottom up a little bit, to get a gradient as shown. Lower the opacity a bit, then blur the gradient (filter–blur–blur) twice to get the desired effect.
Step Ten

Now this is also optional - I flipped the gradient vertically and positioned it at the top of the button to add a bit of shine there as well.
Conclusion
You can now make nice, professional smooth buttons in adobe photoshop for you’re web site!