Tilt shift photography is usually done by using a special tilt lens that moves across two axis with respect to the image sensor. These lenses are very expensive and are used by professionals to capture accurate images of tall buildings coz they provide perspective control. Now people use the same principles to have a bit of fun and create images that look like pictures of scale models and dioramas.
In my case I’ve used Photoscape to create the effect but it can be done via Photoshop as well. Here’s a page with some of the most beautiful examples of tilt shift photography. I hope to keep doing it till I get some really decent shots.