Sunken look in photoshop?
That's quite a clever combination of effects.
There's a vertical gradient to give the rounded appearance to the button.
The arrows are done using an Inner Glow set to black, with its blend mode set to multiply.
The "sunken" look of the button itself is created using a combination of Inner Shadow (to give a direction to the light source) and Inner Glow black/multiply, as with the arrows, with Spread set close to 100% to give that sharp edge.
Soft and sharp edges on shadows convey information about the size of the light source and the distance of the object from the "shadow catcher." The density of the shadow also affects the illusion of distance; objects close to a surface cast darker, sharper shadows, so you can adjust the apparent height and depth of the button recess by playing with those parameters.
Using Inner Glow might seem counter-intuitive, since it's a "Glow," but only important technical difference between the glow and shadow effects is that the glows are directionless, where the shadow effects are directional and require you to define an angle and height for the light source.