Here's a base image (not the greatest source material, I know):



To make the outline for the curves, use the pen tool. I layed out this rough outline.



Use the convert point tool to start forming the desired curves. This part just takes some fiddlin', so drag the handles, see what happens, you'll figure out how to get the shape.





Once you have the path all ready, Ctrl+click the path. It will make a selection inside of the path. Ctrl+I will invert the path, so that the selection will be of the surrounding area. On a new layer, fill this selection with the desired color. Using the layer styles, select drop shadow. Play with the direction setting to get the desired shadow



I turned off the cat layer just to clarify what was happening here. You have the cloud layer. Copy this layer and paste it onto a new layer on top. You'll have two cloud layers. On the top cloud layer, apply a Gaussian Blur. Then, add a mask. On this mask you can use the gradient tool to get a gradual fade; the original cloud layer below will show.



And finally, add text as desired.