The Smudge tool tends to move colors around rather than smudging them and creating an effect. To get this smudging effect:
1. Press ''F5'' on your keyboard. This opens up Brush Settings
2. Select a Basic/Soft Brush or any brush you would want to smudge with
3. Click ''Brush Tip Shape'' under ''Brush Presets'' in the menu.
4. Close to the bottom, uncheck the box that says '"Spacing''
5. Smudge a bit and enjoy!
W/o Smudge Settings:
yamiosama's Banner.
With Smudge Settings:
My Banner, notice edges.
Tutorial done!