What version of Premiere Elements are you using and on what computer operating system is it running.
Generalizing for now...
1. Place your overlay video on Video Track 2/Audio Track 2, scale it down and position it to reveal the content of
of video on Video Track 1/Audio Track 1.
2. Drag one of the static 25% or 40% PiP effects into the Video Track 1/Audio Track 1 clip.
Please review and consider. With more information we can customize the reply to your project needs.