In expert mode, place the smaller video on track two and the larger video on track one.
Resize and position the video on track 2 using the motion properties.
Also, see the free Premiere Elements Basic Training Series here:
Thanks. It worked, although when showing the smaller picture in the video, I would like to zoom in on that image slightly. But when I try to do that it seems to make it full-sized, so to speak. How do I prevent that from happening?
Adjust the scale in the motion properties of the clip. Use keyframes if necessary.