How do you bake textures / shaders etc onto a model?

In the hypershade I have found the convert to file textures section, however when I highlight the shader I get 'no surface selected unable to continue' and when I highlight the object I get 'select a highlighted or shading node unable to continue'.

I get the same thing if I right click and choose to select the objects with the texture on.

Can someone explain the work flow needed to do this, ie what to select in what order? Gratefuls.