Your digital camera
Either a tripod or a flat surface on which you can rotate your camera
Your computer and Photoshop with the photomerge utility
To begin taking your panorama you need to decide your subject and the location that your are going to be taking your picture from. This is very important when taking a panorama because you have to be able to keep your camera is the same location while you only rotate it. If you have objects obstructing the picture your are taking or you have shadows on your camera you should find another location to take the shot. It is important that you maintain as much consistency between shots as possible because when Photoshop puts the images together is looks for similar areas to merge and if two pictures don't line up close enough Photoshop will discard the single one or with only two pictures it won't create the panorama.
When taking the shot start at either the far left or right side. Take a picture to see if you have the settings you want, if you don't readjust until you do. Then once you have a good first shot swivel the camera so that you have a 20% or more overlay into the next image. It is better to have too much overlay than too little because Photoshop needs to be able to see what parts of the image line up otherwise the picture when stitched together will look terrible. Continue taking pictures swiveling your camera with 20% or more overlay between each picture.To make sure that the image ends up correct you need to set the ISO, white balance, and aperture to set values so that they don't vary from image to image. If this happens it makes it harder for Photoshop to merge the images together. It also will make the final product look bad.
Next open Photoshop and go to File-Automate-Photomerge... From there press the browse button and find the pictures that you took for your panorama. If you took the pictures from left to right the lowest number should be on top. Once they are in photomerge press ok and let photoshop do its thing. It may take several minutes to complete.
Once it is done the image that Photoshop gives will probably be a strange shape because Photoshop adjusted the pictures to compensate for and lens distortion. Now all that is left to do is crop the image and apply any final adjustments that you would like to make!