Maybe Katie will see this and respond, but it looks to me like she opened digital paper, then dragged a full page photo on top of it. She probably applied a blending mode to the photo and maybe lowered the opacity of the photo as well.
The blending modes are above the layers palette in PSE6. Just target the photo and choose a blending mode from the menu. Different blending modes will give you different looks - I usually just experiment to find one I like. You can also lower the opacity of the layer with the Opacity Slider above the Layers palette.
This tutorial is really great and teaches you techniques for blending:
this one is terrific, too:
