Mostly, what I do, is to create a layer of the colour I want, lock the layer with the image I want to show... select the layer I want to "put a 'hole' in", and use eraser, set to airbrush, fully soft, to get the "Fade-out" edge... if you want you start with a circle, and "pull" it into the shape you want to start with.  I usually work with my background set to transparent. Lou.

"..... and that was when things got interestiing."