In the example below, I carried out the following steps.
1. Saved a duplicate of the clothing image as an 8 bit PSD which I called Displacement.PSD
2. Opened the clothing image
3. Used File > Place Embedded to place the embroidery image and adjusted its position.
4. Added a filter to the embroidery layer using Filter > Distort>Displace and used the file created in step 1 as the displacement map. This distorted the embroidery to match the folds in the clothing.
5. Duplicated the clothing layer and dragged it to the top of the layer stack and clipped it to the embroidery layer (Right click in layers panel and choose create clipping mask)
6. Changed the blending mode of that clipped layer to pin light and reduced the opacity. This adjusted the lighting on the embroidery