Every version of PS seems to get closer to Corel Painter (once Fractal Design Painter), regarding "natural media" Filters, but for "watercolor," I think that Painter still has much to offer. That program's handling of "watercolor," is excellent, and, as of about Painter 5, PSD support has improved with each version. Might be worth a look, if one wishes a real, and controlable "watercolor" look. The control is almost mind boggling, and one could spend an entire day, just making the myriad adjustments to that Effect.
Thank you for this info. I had heard of Corel but never considered buy it as I am a photographer always looking at PS or Lightroom
If you want to stick with Photoshop there are a lot of 3rd party filters that can give you a watercolor effect, e.g.
Filterforge: this is a community where individuals can create and share filters that apply affects at any resolution. (You have to buy the Filterforge product, to use the filters, but you can download a free trial). There are a number of watercolor filters (all have loads of settings that can be tweaked) http://filterforge.com/filters/search.html?q=watercolor&h=r
Alienskin has a plug-in called Snap Art that can apply all kinds of painterly affects. There is also a free trial http://www.alienskin.com/snapart/index.aspx
Both Topaz Labs and OnOne Software have plugins that can apply all kinds of affects. There are loads of other plugin manufacturers who do this, too.
There are also plenty of tuturials out there on watercolor effects in photoshop, like this one:
While some may not be terribly realistic, they are good for learning photoshop.
In my view, Photoshop makes better watercolor - transparent watercolour - simulations from photos than Painter. One way is to make a pattern of your starting image, and then use a watercolour brush with the Pattern Stamp Tool to clone a watercolour looking treatment of your photograph. Before you begin painting, a little detail simplification is a good idea and you can do this using the Smart Blur filter or better, the BuzSim filter in Topaz Simplify or even better than that, the original buZZ Simplifier filter (no longer retailed). You should add some paper texture in texturizer or as Pattern Fill layer. That's the bones of the the technique. As R_Kelly said there are tutorials on the web. There are also some good ones in books and magazines.
Thank you all for your amazing answers
The watercolor filter is still in CS6. It's in the Filter Gallery under "Filter." The trick is that the image has to be 8 bit to access the Filter Gallery. You can't access the Gallery when you're working on a 16-bit image. So go to "Mode" in "Image" and convert the image to 8 bit before you try to do it.