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First you need to make chequerboard pattern.
Make a new document 100 x 100 pixels, and 100PPI
Turn on the grid (Ctrl ')
Drag a rectangular selection over one quarter, and fill with black (Alt Backspace)
Repeat for the opposite corner. Note the selection will snap to the grid
Go Edit > Define Pattern
Call it Chequerboard
Now make your document with the text. Best to use a heavy font. It does not matter what colour you use
Double click the layer to open Layer Styles, and select Pattern Overlay
Use the drop down and select the pattern you just made.
Adjust the Scale to give the effect you want
You might want to also give it a black stroke to contain the white squares.
Trevor.Dennis​, you beat me to it again. Drat!
(No need to repeat your instructions.)
(Edit: My approach was somewhat different. Added this checkerboard pattern as a layer above the type, then Layer > Create Clipping mask, so that I could fuss with the precise size of the box pattern and even toy with rotating it a bit.)
norman.sanders My first thought was to clip a layer to the text, but having tried it, I was not able to scale it small enough. I even copied the chequerboard layer a couple of times so I could Free Transform it down, but I decided this was getting silly and over complicated. Using Layer Styles to apply the pattern lets us scale it from 1% to 1000% and do so non destructively — we can go back in and adjust as many times as we want.
What does 'Link with Layer' do?
OK I've worked it out. If you uncheck it and later move the layer, the pattern does not move with it. In fact we can make use of it in this case. The chequerboard is unlikely to align nicely with the layer, as below.
But leaving Linked Layers unchecked, we can move the layer to fix that. I realised that the scale was not letting us get a good result, so I played with that and added the stroke. When happy go in one last time and check Link with Layer.
It seems to me that this is always going to need compromise somewhere, because aligning the chequerboard with one character, is going to leave it looking wrong on another. I would hate this if doing it for real, and I am not even sure that breaking the word into individual type layers would work, because the eye would pick up that the chequerboard was out of sync with itself.
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