When you create your
PS document create the image in a size appropriate for the area on the shirt. (You may wish to change your units to inches or cm)
Make sure your Resolution is set to 300dpi and you should have no problems.
Of course, if you have even the remotest indication that you will need the same artwork to be larger in the future, consider using Illustrator (scaleable vectors) or creating it at a larger size than required (but keep it at 300dpi)
The printing method also can affect the quality of the image on the fabric, as well as the fabric itself. Try and keep your text above 12pt.
Mike.