There are many ways to "smooth" images in Photoshop. Blur filters can be used to soften an area of a photograph or an entire image, as well as for smoothing transitions. You can also add noise, apply filters to individual layers, parts of layers, or entire images.
Select an area of an image that you want to smooth or soften using a selection tool, like the Magic Wand. Make sure you have the correct layer selected in the Layers Palate before making your selection.
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To select an entire layer, click on it in the Layers Palate with your mouse. You can choose to view only selected layers by un-clicking the eye to the left of each layer within the Layer Palate, except the one you want to view.
If you wish to apply a filter to an entire image with multiple layers, you will have to "flatten" the image to do so. Go to the Layer Menu at the top of your workspace, and then select "Flatten Image."
Go to the Filters Menu, then Blur and choose a filter. Each filter has varying levels of control. It is important to familiarize yourself with each of these and their abilities by playing around a bit with them.
Adding noise is a quick and easy way to smooth by blurring. Go to the Filters Menu, then Blur and Add Noise. Choose the Amount (percentage) of blur, the distribution (Uniform or Gaussian).
You can add effects to layers from within the Layers Palate as well. Some layers are better than others for their effectiveness in blurring or smoothing.