What version of Premiere Elements and on what computer operating system is it running?
Generalizing for now...
1. You can place your picture on Video Track 2 directly above video on Video Track 1 and then scale down the picture on Video Track 2 so that the video on Video Track 1 is seen in the now transparent areas. You can reposition the scaled down Video Track 2 content as wanted.
2. You can place the picture on Video Track 2 and then apply a Picture in Picture effect to the picture. These presets are for 25 or 40% scale (can be adjusted), and there are static, spinning in, and other types.
Please review and consider. Please give more details of your situation for a more fine tuned reply.