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Here's a quick way to do this, assuming you have the picture in a separate layer above the background (set to the BG color of your choice)...
1) Open the canvas up to fullscreen, so you have a lot of grey around the picture, you may need to zoom out to do this
2) Select the eraser tool, and pick the largest feathered brush you can
3) Select the layer with the Picture and in the gray area (not in the actual picture, outside of it) click and slowly move in towards the picture. You should see the edge start to disappear faintly, showing the background layer.
If too much disappears, use a smaller eraser brush. If not enough, move closer to the picture. Keep clicking to increase the fade.
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