Purpose: Arguably, the most powerful feature of Photoshop is its masking. Understanding masking and using masking will exponentially save you a ton of time, and most importantly take your creative abilities to unlimited possibilities.

Difficulty: Beginner

In Short: Keeping it very simple just by "Add layer mask".

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What is masking?:

Masking is simply a layer covering another layer.
So what can you do with masking?

1. Show part of a layer on top of another.
2. Blend gradient fades between layers.
3. Create layer shape effects.

You may ask think that masking is similar to erasing with the erase tool, but it is different in part because masking does not delete any part of your original layer and can be readjusted for future use. We'll be using the "Add layer mask", which is the easier and simpliest way, to work with masks.

Using "Add layer mask":
Now is when you need to pay close attention to detail. Adding a layer mask will create a "Layer mask thumbnail". You can select either to work on the "Layer mask thumbnail" or the actualy "Layer thumbnail" by click on the thumbnail.

For the next few examples, I will use these two images, rocks and landscape.

Use Brush tool with layer mask:
If you are not familiar with the brush tool, please view my brush tutorials for more detail.

Using the two images from above, rocks and landscape, create an image with rocks layer below the landscape layer (as seen to the right). Now click on the "Add layer mask" thumbnail in the bottom of your layer palette. Select your brush tool, press D to reset colors to default black and white, press X to switch colors and use the color black, and just brush away.

You will hide the top layer with the color black and show the layer with the color white, and any color between black and white will hide/show depending on the percentage of black/white. For example, a middle grey, 50% black will show 50% of the layer, 30% will show 70% of the layer.
Hint: I use the color black with opacity to control the amount.

          
The example shows how by brushing with the color black on the layer mask hides that specific area on the landscape layer.

More examples with Masking:
To fully understand and master the layer masking, it is best to just experiment with it. Here are some examples of masking using different tools.

          
Using brush tool size of 100px and 0% hardness. You will get a fade of the top layer to the bottom layer.

          
Using the gradient tool with colors black to white. Create the vertical gradient on the layer mask will give you a gradual fade of the top layer.

          
Using brush tool with mix of brush sizes and hardness, you can hide/show parts of the layer you want to use.
This examples may not blow you away, but techniques used here can give you so much more power. To view how to create near perfect skin using masking effects, click here.