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Select Layers > Duplicate Layer. Select the Lasso Tool from your tool palette. Increase the feather to between 1 and 3 pixels. Zoom in on your subject(s) so that you can see the edges clearly. Click or drag the Lasso tool along the edges of your subject. Go to Select > Inverse. Go to Filter > Blur > Gaussian Blur. Go to Select > Inverse. Go to Layer > Add Layer Mask > Hide Selection. Use the Brush tool to modify your selection. When you're completely satisfied, go to Layer > Flatten Image.
This will stack a second, identical layer over your original image. You'll use this to select the image(s) in the photo that you want to distinguish from your blurred background. Choose the selection type based on what is most suitable for your particular image. Ex.: If the image you want to emphasize has very straight edges, right-click to change the lasso to Polygonal, which will create straight lines between the points you click. If there's a sharp, clear edge between the background and the image you want to emphasize, change the lasso to Magnetic, which will find the edge for you. Feathering your edges will make them softer and subtle and much more forgiving. This will help you freehand-select more accurately. Be sure to "close the circle" by ending up back where you started and clicking on your origin point. You'll know your selection is complete once a dotted "marquee" line appears around the edges. Make sure you're working on the top layer when you lasso. To add to an already-completed selection, hold down the Shift key while you continue to select. This is a great way to either modify your current selection or simultaneously select a separate subject. To subtract from an already-completed selection, hold town the Alt key and select the area you wish to remove, which will then become unselected. Don't worry about making your selection perfect the first time around; you will adjust it later. This will select your background instead of your subject(s). This will blur the background of your image. Play around with different blur radii to create the background effect you want. The larger the radius, the blurrier the image, so if you're going for a subtle effect, aim low. For example, if you want the background to be very soft and only somewhat identifiable, try a radius of 10. If you want your background just barely blurred, use a radius of .5 or 1. This will re-select your subject(s) instead of your background. The subject of your photo will disappear from the top layer, revealing the intact image from the layer underneath. It may seem like a mistake to "paint" over your photo, but what you are really modifying is the size and shape of the "hole" between your top and bottom layer. In other words, this is a way of fine-tuning that lasso selection you made originally. Use black to hide more of your top layer. For example, if the blurring overlaps your subject in places, use a black paintbrush to hide some of that top-layer blurring. Use white to show more of your top layer. For example, if the blurring isn't close enough to the edges of your subject, simply fill in the gaps with a white paintbrush. Be sure to use shades of gray. Especially for edging, it's important to keep the look soft and subtle, which will make errors harder to detect. This will combine your various layers into one.