I thought that you would start out with a photo that you have opened in Photoshop. You can also just open a new file in the size you wish and lay a flat color in with the bucket or select a gradient and fill the file with that. You can also just go to the color selector and pick a color for the background. This you can fill into the file by just going up to Edit > Fill.
Then you duplicate this layer in the Layer pallet and do as described above. You will be surprised when you see nothing happening, but that is because you have to deactivate the background layer for it to become invisible.
When you select with a feather, a swath of the selected pixel size will be the area that will fade away after inverting and deleting. If you do not invert, you will eliminate the image in the middle, a frame will be left standing with a fade towards the middle.
Have you worked in Photoshop before?
PS. Photoshop has a tutorial built right in, you know. It is very good and questions like this are answered very nicely. I learned all of it this way and you should maybe start with the basics there.