"Restoring old photographs" is an art in itself. In my experience, it is a combination of photographic knowledge and painting skills. I am not a professional restorer in the strictest sense of the word, but I do use restoration/retouching techniques in my work as a commercial photographer. I have to warn you that I did not take any seminars to learn what I am about to share here. So my methods might be a tad unconventional, but they do the work and get the job done.
Hair can be tricky to restore. Pay attention to highlights and shade.
By definition, "Photo Restoration" is the practice of restoring photographs that have been damaged by nature, harsh handling, the deterioration of the medium and/or plain neglect. Before the advent of Photoshop (and other similar photo-manipulation software), restoring old photographs were only undertaken by professional restorers and serious hobbyists, because it required manual hand-painting or retouching with photo-safe dyes on the actual print. It was costly and time consuming. But digital technology changed all that. By scanning the original print or negative and working on a digital facimile, we are able to restore the image without damage to the originals. Through this process, we are not only able to restore but also improve the quality of the picture -- in terms of color, contrast and resolution.
Anyone equipt with Photoshop (any version or any similar software) can restore old photographs easily. All you need beyond this basic software, is a good digital scanner and a lot of imagination. Being good at drawing and painting helps, but visual acuteness is more paramount. Because in the end, how a photograph ends up looking will all depend on an individual's personal taste -- something no one can ever teach. So I limit my discourse to purely technique here.
I had to recreate the whole right-side of her face because of the damage.
I usually scan my original prints according to the size I want my copy to end in. If the original is small, I scan it at a higher resolution. Then I proceed to clean up the copy using the Clone Stamp and the Healing Brush tools. This can be a tedious process depending on the extent of the damage. I like to blow-up my copies to huge proportions, so I make very tiny and detailed clones using the most immediate shades and textures as close as possible to the damaged area. Sometimes replication and reconstruction of detail (particularly on the face) requires advanced drawing and painting techniques for severely destroyed areas. This is where your talent comes in handy. For faces, I usually employ details from the opposite side and sculpt them to shape using the Marquee, Lasso and Smuge tools. This whole process comprises the restoration part and usually takes the most work.
Color photos usually suffer from discoloration and fading.
After the restoration proper has been done, all you have to do is to finish the copy according to your specifications. I usually improve shadows and highlights using Levels, Curves, Brightness/Contrast and Dodge/Burn tools. Color can be adjusted using any of the color correcting functions. I tend to use Hue/Saturation and Photo Filter the most. After all this, I slightly tweak sharpness (or blur) to taste, then Voilà! You have a fully restored photograph.