Back in the day when I had pretty crappy computer I faced lots of problems with Photoshop. And among them this problem is common. Photoshop doesn't play nicely if your CPU isn't fast enough and doesn't have enough RAM. So here are some of the things I did to tweak photoshop's performence

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Scratch DisksAdobe Photoshop uses your hard drive to save different works steps. Like history, under/redos, and even meta data of pictures. Photoshop only uses this system if your actual PC RAM is low by creating a fake RAM card on your HD. This fake RAM card is called Virtual Memory and pretty much used by other windows applications as well. So if you are low on RAM but have lots of HD space then you will be in good hands and recieve the same benefits you'd get by having 2 GB RAM

. To set up your Scratch Disk take the following steps:
- Open Photoshop
- Go to Edit - Preferences - Plug-Ins & Scratch Disks
- Under Scratch Disks fieldset choose the one with most space for the first one.
- You may add other additional scratch disks but they will be used only if the first one is used up completely
RAM SettingsAgain Photoshop is bit smart and lets the user how much RAM it should use for its work. By that I mean photoshop alone won't take all of your RAM but a small percentage from it. Before you make the change let me warn you that like many others I thought by increasing the amount of RAM used by photoshop will make it faster. But actually its the opposite and eventuall slows down the PC. So if you have lots of HD space I suggest keep it low

. To change the percentage of RAM used just by photoshop do the followings:
- Open Photoshop
- Go to Edit - Preferences - Memory & Image Cache
- Change the values under Maximum used by Photoshop.
- I suggest keep it to about 60% and if you experience lag in your system them decrease the percentage use.
- Cache levels helps you to draw high resolution image quickly. So higher the level is more fast the images will be drawn. I suggest keep it to 6 and you can only update it upto 6. In addition Cache level 1 will completely disable caching.
Other TipsIf are using a PC less than 512 MB ram and 1.30 GHz speed. Then most likely you will have some trouble running Photoshop along with other applications. Such as Macromedia Flash, Dreamweaver or Fireworks. So I suggest work on Photoshop alone if your PC is pretty weak hardware wise.
It is a good idea to defragment your PC once in a week. I say it because if you work with lots of images/stock photos and also web design then most likely you use a lot of graphics. So what photoshop does is break them apart and eventually fetch them from different sources of your PC. Which is why it is good idea to defragment your PC after you are done with your works in order to free up some extra hard disk spaces.
If you have your own tips, then please share them.