We study the generation of strongly correlated photons by coupling an atom to photonic quantum fields in a one-dimensional waveguide. Specifically, we consider a three-level or four-level system for the atom. Photon-photon bound states emerge as a manifestation of the strong photon-photon correlation mediated by the atom. Effective repulsive or attractive interaction between photons can be produced, causing either suppressed multiphoton transmission (photon blockade) or enhanced multiphoton transmission (photon-induced tunneling). As a result, nonclassical light sources can be generated on demand by sending coherent states into the proposed system. We calculate the second-order correlation function of the transmitted field and observe bunching and antibunching caused by the bound states. Furthermore, we demonstrate that the proposed system can produce photon pairs with a high degree of spectral entanglement, which have a large capacity for carrying information and are important for large-alphabet quantum communication. © 2012 American Physical Society.