I'm pretty sure the provided effect was done in a 3D software. It will give you the most accurate and best results that way.
However, there are few ways to imitate similar effects in Photoshop. It all depends on how much time you want to spend on creating it.
Things you need:
- fabric folds image (for raster images) - silk is probably the best in this case as it will give you a smooth finish
Ways to do it (from the most recommended to the least recommended - by me ofc.):
1) Use of 3D software (Maya, 3D max, etc. - Blender is free to use) - best results, very high quality, most control overall.
2) Font + pen tool: This would be my choice if no 3D software is available. And if I had plenty of time to create it. You still have a lot of control over it and you can overexaggerate the effect manually if needed.
Basically, I would put the folds image as my background. Then I would choose my font and put it on top. Scale it to the size you need. Cut into pieces and put in the flat areas where necessary, use the pen tool to create folds. At the end make the entire text into a smart layer. Then move the background layer on top of the text, change it to a clipping mask to apply to the text only (that will give you shadows only on the text). Of course, you can change colours to your liking at any time inside the smart layer
3) Use Filter -> Distort -> Displace: Big pro of this is that it can be very fast. Although, not much control, it all depends on the background image. The results vary from very good to cheap looking (depends on how effective you are with your tools) - not bad tutorial >>HERE<<
4) Use any kind of Warp/transform tools: Not recommended at all. It is possible to do it with multiple warp transforms. However, it would be a very painful thing to do IMO. it would only work if you have a small fold
Hope it helps you