Okie dokie. This is VERY BASIC, but it shows you the settings you need and i'll explain it best I can. I'll do a tutorial for smudge one I remember how to do it properly, I'm VERY rusty at it - but for the purpose of what you need it for, this SHOULD suffice.

Anways.

http://i39.tinypic.com/2dgnymw.jpg

Take a look at that image, (You will need both images for the settings so hold tight before you get started).

I have circled the brush i used, it's a default brush called Chalk so don't worry you don't need to download ANYTHING! To your right you should be able to see brush options. Make sure you have the smudge tool selected which is the little hand pointing, you can see it next to the image of brush i circled for you. (this is an image copied and pasted onto the canvas)

Really hope I'm not confusing things there.
Anyways...

Make sure you set the settings like i have for scattering. (or as close as you want)

http://i44.tinypic.com/2cgosw4.jpg

Then make the settings the same for shape dynamics, the other two boxes you see ticked just tick them .

If you see at the top of the picture you can see my 'render' (it's a photo, it's not been rendered). I have drawn on arrows for the direction you smudge. For the background you need to smudge away from the image, outwards.

The second image you can see what it looks like once its done - doesn't have to be exactly the same, course yours wont be... different images bring varied results. However can you see how this gives you the perfect colours for your background? It also looks slightly like an army cameo (Or will do with your colour scheme)

Does this help at all? If not I'll be less lazy and make a proper tut.