From: Daniel Piechnick
Hi Chris. I know the effect you're trying to achieve, where the images merge into each other. If you've just got two images that you want to totally merge, just put them each on a layer in Adobe Photoshop, and set the top one to Opacity 50%. If you have images that you just want to merge at the edges, put them on different layers, and select the Eraser Tool from the toolbox. At the top of the screen, set the Opacity to 50% or less, and the mode to "Airbrush". Brush around the edges of the topmost image (it doesn't matter which image is on top). Doing this will make the edges of the image semitransparent, so that when it's placed over another image, those areas will be a smooth fusion of the two images.