"I download the video's from my camera can I go through them and extract the good footage and save it like that for me to use at a later date in my projects."
This is the very definition of video editing, Cory! That's what the program is designed to do!
If you need some help with the basics of this program, I've created a free 8-part Basic Training series of tutorials for Premiere Elements support site Muvipix.com. That may be the best place to start.
The most important step in any project is setting up the project settings to match your source video as precisely as possible. I cover this in part 1, so watch it carefully. I go into greater detail on setting up a project and capturing, editing and outputting video in my books, if you're interested.
As for Photoshop.com, I'm not sure it's worth buying more than 20 gig of backup space online at this point. You'd be better off investing in a good, large second hard drive for your media and project files. Save the online backup for your finished pieces.
I think Cory is asking about reducing the size of his original file, not just editing to view only the 4 minutes of good stuff. If I recall correctly, there are two methods of archiving edited material -- one (Copy Project) saves the entire original file along with the .prel, the other (Archive Project) actually trims out all unused material and saves only that which your editing left in, leaving you with a considerably smaller file to store. Access through File>Project Archiver. This is from PE8.