If you hold down the "ctrl" key and click on the image of the layer in the layers palette, it selects just the item you want to work on, and not the extra empty pixels.
If you are looking to make the edges a bit see-though, you can then erase the edges using a reduced opacity on the tool you decide to use (eraser of a paintbrush in "clear" mode). Not quite sure about the look you are trying to find, so there may be more tool options to play with. Shout if you need more help
