What I see in this image is a few different layers inside Photoshop.
First thing I would do is find the image you want to use as a background and turn it into a circle. The borders around the Kronas image looks like 3 maybe 4 different layers. The first one that would sit directly on top of your background is the the black outline you can see along the inside edge.
Secondly, you have the largest, outer ring. Making it a stone grey, add a hard bevel and emboss to it, to create the hard edges that you can see. The chunks and chips that you can see on the left side can be simulated on that layer or added on a separate one through various techniques.
Third, I would create another circle selection with your round marquee tool on a new layers and then apply a stroke of the gold color. But as you can see there is a gradient, so you can use the Blending Options to apply a gradient overlay or do it when you apply the stroke to your selection.
Making your character overlap the top half of the image can be done in a number of ways. You can create a mask, or to keep it simple, delete the parts you don't want to overlap. Place your character on it's own layer, and Ctrl-Left Click your background image layer to have create a circle selection the size of your background. Hit Ctrl-Shift-I (invert selection, or just use your magic wand while having your background layer selected and click on empty space) To select everything outside of that circle. Obviously if you hit delete now, you will turn your character into a nice ball. So take your square marquee selection tool, hold down Alt and draw a box from somewhere above your character to halfway down your circle, or wherever you want to deselect that space, so when you hit delete, nothing in that area will get erased. Hit the delete key and everything in the lower half of your character screen outside your circle should get erased, giving it the illusion of popping out of your circle.
Pick some nice font, type out your text, then apply a drop shadow, but decrease its distance and increases its spread so you get the effect that you see in the Kronas image.
Sorry if this makes no sense, I am trying to do it in a hurry during a few minutes of downtime at work.
Here is what I threw together (hopefully the PSD link works for ya):
http://pirateninjagame.googlepages.com/ ... Button.psd
