If you're trying to make two images look like they fade into each other, I think the effect you're looking for is a "feather" effect. The method I use is definitely not the best, but it's what I know.
1) Import both images into photoshop on separate layers.
2) Select the marquee tool. Up the top in the properties bar, change the feather value to 15 or 20 px (you will need to play with this depending on the size and resolution of the image).
3) Use the marquee tool to "select" the edge that you wish to fade into the next image. Press delete and you should see that the image is removed from the marqueed area, as well as gradient type effect that extends just past the marquee area.
If any of this doesn't make sense, or if anyone has any other way to do it, just let me know.
Cheers
Luke
ForestTech