you'll need to really study how folds and panels of fabric drap around and over the parts of the body.

it's really no different than traditional drawing. you just bring the photo into a program like PS and mask the areas of the body (that have street clothes). if you are familiar with Poser, you may be able to replicate the pose and use some of the render to blend with the photo.

you'll need to build up gauze-like textures using brushes to achive the fairy clothes. you may also want to create special "twinkly" brushes for the "fairy-dust" effects...

there was an artist here a few years back that had some great brushes (i'll try and remember her name...) but i always like to make my own if possible (more control over the effect)