To get started, choose a photo. It can be anything, but I've gotten especially good results using people and nature photos--just pick something and see how well it works. After you try a few, you should develop a sense of what kinds of images look best with this effect.
Open the photo in Photoshop Elements. As always, though, you can apply these instructions to almost any photo editing program. Only the specific menu commands will vary.
Our first task is to make copies of the photo. One will be sharp and in focus, while the other copy will be blurry. Choose Layer, Duplicate Layer. Name the layer "Sharp," so we don't lose track of which seemingly identical layer is which. Now create a second layer in the same way, but name this one "Blurry." In this screen shot you can see the two layers, along with the original photo we started with at the bottom of the stack, named "Background:"