There is very little information about this function so I thought I'd add a few notes I found while trying to get this 

working.

First make sure your version of PHP is above 4.3.2 I spent an hour searching goggles 13000+ mirrors of this same page and 

finally found the info I needed at AltaVista, there is a bug in PHP 4.3.2 that makes this none functional.

if your creating the base image you need to create it with imageCreateTrueColor() if your using a PNG with transparency, I 

found even nullifying the PNG's transparency with GD doesn't work. the tiling PNG has to be created without transparency to work with imageCreate(). but from what I've seen imageCreateFromXXX() can use transparent and nonetransparent PNG's.

here is an example.
<?php
    $diagramWidth = 300;
    $diagramHeight = 50;

    $image = imageCreateTrueColor ($diagramWidth, $diagramHeight);
    $imagebg = imageCreateFromPNG ('tile.png'); // transparent PNG

    imageSetTile ($image, $imagebg);
    imageFilledRectangle ($image, 0, 0, $diagramWidth, $diagramHeight, IMG_COLOR_TILED);

    $textcolor1 = imageColorAllocate ($image, 80, 80, 80);
    $textcolor2 = imageColorAllocate ($image, 255, 255, 255);

    imageString ($image, 3, 10, 20, 'Transparent PNG Tile Test...', $textcolor1);
    imageString ($image, 3,  9, 19, 'Transparent PNG Tile Test...', $textcolor2);

    Header("Content-type: image/png");
    imagePNG ($image);

    imagedestroy ($image);
    imagedestroy ($imagebg);
?>

hope this helps someone else!
Aquilo

If you're using a tile image that has some form of transparency you'll need to make sure your destination image is set to use alpha blending. By default it will be, but if for any reason you've changed it you'll need to do:

imagealphablending($image,true);

before any operation using IMG_COLOR_TILED.