Cassie, that page & extraction are amazing!
American Girl, that cut-out is what Cassie was calling the "extraction" -- but it's actully not as simple as clicking a button in Photoshop. You can use the magic wand too to select pixels, then go into masking mode / select brush / fine tune the selection, then go back to regular mode and see if you like it. There are also MANY other ways to do extractions, but they are all multi-step processes that require much time & tinkering.
You can find some of Cassie's tutorials for sale here on the site where she describes how to do a lot of cool stuff. But if you are a true beginner, you may want to buy a Photoshop book too. Also, try searching for "how to do extractions in Photoshop" in Google and you will find lots of free tuts & even video tutorials that give you basic instructions on how to do extractions.
To make someone "fit inside" a letter, you can often erase the part of the letter that is supposed to be "behind" the person.
good luck & have patience...Photoshop is so awesome once you get going on the tutorials!