Its quite a fast and easy process to make this effect, here shown with the colors of the original pic.

as a background i´ve choosen an olive green with two different gold/yellow tone as an accent to put on.

1. First i made the general shape of whatever you wanna do with this, here just a simple rectangle.

2. i gave it a soft bevel effect in the layer above it to make it stick out a little and give it some internal shading, although in the final this probably wont be visible much.

3. a close, soft shadow in the layer below it to increase the 3D effect a little

4. now for the strings above: take the lighter color and choose a very narrow brush (1px wide for me here) and just go nuts over the thing, you don´t have to care that its all over thats being fixed later just take care that it looks like somebody would sew there.

5. now to fix the bits that are standing out, select the area around the original darker color and contract the selection by the diameter of your "strings" (1px) so when it cuts they stay their width over.
I then used the feather tool on the selection, also 1px wide so it doesn´t cut abrubtly but fade out a bit, letting the strings fade in the background.

now you can cut with delete everything thats to far out and voila.
just fiddle with the strings rendering mode until it looks real to you, maybe use overlay or add, for this here it just normal, depends on what colors you decide to use.

well and thats about it

enjoy~