Dear AA,
It can be confusing, try to follow this:
1. Duplicate your background image. Click and drag the background image down to the icon next to the trash can in the Layers Palette
2. Keep that duplicated image highlighted
3. Go to Layer>New> Layer and clickOK
4. You will see a blank layer above your image
5. With the blank layer highlighted or selected go to Edit>Fill. You will see
a pop up window and under Contents Use white to fill. Click OK
6. In the white layer, reduce opacity of the fill to 25%
7. Select the eliptical Marquee and draw an eliptical selection around your image, ( this is not a true oval as Gary reminds us

)
8. Now go to Select>Inverse or Ctrl+Shift+I
9. Press the letter Q to enter into Quick Mask Mode
10. Go to Filter>Blur>Gaussian Blur and adjust the blur feather to your taste
11.Exit Quick Mask by pressing the letter Q again
12. Do Shift+Ctrl+I again or Select>Inverse
13. Re-Set the white layers opacity back to 100%, It will be all white, don't
worry.
14. Now go to Edit>Cut or Ctrl+X and the image will appear.
There are easier ways to be sure, but I've always liked this method.
k