Next, position the magnifying glass to suit your needs. Click the Move tool (the very first one in the toolbar at the top of the toolbar on the left side of the screen) and use it to position the magnifying glass over the part of the photo you plan to enlarge. You can also resize the magnifying glass so it's about the right scale for your photo.
It's time for the magnified photo. Open the original, full-size image and add it as a layer just like you did with the magnifying glass (press Ctrl-A and then Ctrl-C, then switch to the other photo and paste it into a new layer).
At this point, you'll want to finesse the enlarged photo so that the magnifying glass shows the desired part of the photo. Click the Move tool and use it to position and size the photo.
We're in the home stretch now. For our next trick, we'll select the lens of the magnifying glass. Or, more specifically, the enlarged photo that's in the lens circle. Choose the Elliptical Marquee tool in the fifth cubby from the top of the toolbar, and then--making sure that the enlarged photo layer is selected in the Layer Palette on the right side of the screen--click and drag to create a round selection over the magnifying glass lens. You won't get it right the first time, so feel free to click and drag again until you get a selection that closely matches the lens.