Step One

First of all, create a new canvas, with these settings:
Width: 100px
Height: 50px
Background: White
Next, fill the canvas with #D9D6D8 using the fill tool.
Step Two

This is what you should have.
Step Three

Now we drag out a rounded rectangle path (using the rounded rectangle tool with the settings shown below, this will give you the image shown to the left.

Step Four

Now name the path, by double clicking on it on the paths tab, and entering a name, as shown to the left.
Step Five

Now, without deselecting the path, go layer–new fill layer–solid color and then select OK, and select white as your fill color.
Now, lower the fill opacity of the layer to 0%, as shown to the left (note the FILL opacity, not the layer opacity, your layers palette should look like the image shown to the bottom left.
Step Six

Next, we apply some layer styles to the button, first go layer–layer styles–gradient overlay and enter the following settings (shown to left as well).
Blend Mode: Normal
Opacity: 100%
Style: Linear
Angle: 90 degrees
Scale: 100%
Color: #C6C5D7 —> #FFFFFF

This is what you should have at this stage.
Step Seven

The next style to apply is the stroke, with the following settings:
Size: 1
Position: Center
Blend: Linear Burn
Opacity: 100%
Fill Type: Color

This is what you will have now.
Step Eight

Finally (on the layer styles) you apply an inner shadow with these settings:
Blend Mode: Color Dodge
Opacity: 100%
Angle: 90 degrees
Distance: 1
Choke: 0
Size: 3
Contour:
Antialiased: Yes
Noise: 0

This will be what you have so far.

This will be what you have so far.

This will be what you have so far.

This will be what you have so far.

This will be what you have so far.
This next part is optional, but I think it makes it look much better.
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Step Nine

Now it looks OK, but we (I) want a little less anti-aliasing on the button, as it looks a little blurred at the minute.
First of all go layer–flatten image - this will flatten all the file onto one layer, now zoom in a bit, to see where you can manually improve on the layer style’s effort.
First, I selected the bottom line of the top stroke (marked as 1 on the diagram), and filled it white, then I selected the top line of the bottom stroke, labeled 3, and filled it in #C8C7D9. Then, I selected the left line on the right stroke (marked 2) and filled the selection with the same gradient as the rest of the button, then repeated this on the left stroke.
And here is our result, you can also make it inset by expanding the button shape by 1px, and dragging a black–> white gradient vertically downwards (see my inset orb tutorial for more details).