The concept of Handles with Transitions can be very confusing at first. When one sets the In & Out Points, or they use the Razor, or Scissors, they have not altered the original Clip in any way. They have only issued a set of instructions to Premiere on what parts of that Clip to use for both display and for Export. The original remains safe on the HDD (Hard Disk Drive). This is what "non-destructive editing" is all about. If there are Frames, from other "scenes" in that Clip, they will not display, or be used, if one sets the In & Out Points, or uses the Razor, or Scissors, to "Cut" the Clip - unless one adds a Transition, and the Handles are not adequate. Then, Frames for the "scenes," that the user believed were "cut out," will be used. This is the upper example in the following graphic.
Now, if the Clip ONLY contains that one "scene," and the Out Point is set to the physical end, the last Frame will be repeated, as many times as is necessary. This is the lower example in the following graphic.
Her is a bit on Handles from the Help files:
Here is a graphic showing the Transition area and the Handles:
NOTE: the above example shows how things would look when editing film, or video in an A-B Roll editing environment. As most NLE (Non Linear Editor) programs place the Clips on a single Video Track, the Handles will not be seen. Only the portion of the Clip, between the In & Out Points wil be visible. The above is for demonstration purposes only. See the image in Reply # 1 to see how the Clips, on the same Video Track, will appear in Premiere.
This is example shows an A-B Roll editing environment, where it is much easier to understand the concept. What trips many users up is that with a single Track editing program, they cannot see the Handles. Also, when one Cuts, or sets the In & Out Points, they can no longer see the other Frames in the Clip, so are surprised, when they suddenly appear in a Transition.
This shows the same two Clips, 003.avi & 002.avi. The upper two Video Tracks show how it would look with A-B Roll editing, showing the Handles as an "overlap." The lower Video Track shows how those two Clips would appear, with their In & Out Points set to provide Handles for the Transition - the "overlap" is not visible there.
Hope that this helps,