Kindly review here on how yo ucan create layers in PSE- http://help.adobe.com/en_US/photoshopelements/using/WS287f927bd30d4b1f-f216bde12e28ad1224- 7fff.html. You can also navigate to expert mode or click Window->Layers or add layers from Layer menu from top menu bar.
Also make sure your file is in 8 -bit. if it is 16 bit you can convert to b-bit from Image->More->8 bit and try.
Hope it helps.
Thank you Gary! I know how to creat layers from other programs, but it was "light grey" and I was not able to click on add layer. I swear I toggled over to expert, but I guess not. When I just tried it, it allowed me to click on new layer.
Do you happen to know if it is not possible to create a new layer or mask when in "quick" or "guided" mode?
It's not possible in quick fix, and in guided mode it only happens when there is a specific step in the edit you are using that calls for it. You can't use the menu or keyboard commands to do it.