This is such a cool effect makes pictures looks so cool and is GREAT to use when blending images, just gives it that extra special touch, don't you think?
Load PS, open up the image you would like to use this effect on, this is the image i choose you can right click and save if you like to use it for practice.
Now make two copies of the image. Go to the Layers Palette (lower right hand side) and right click on the background copy and go to Duplicate Layer, so it makes a exact copy of it. Make sure that Layer 2 is on top of Layer 1 (drag it down or up) to get layer 2 on top, if needed.
Select Layer 1(Background) and Blur it, Go to Filter>>Blur>>Guassian Blur, the amount of blur depends on the quality of your image, use my settings if using my image, or just play with it so it looks like mine:
Go to Layer 2 and change the Layer mode of the current layer from Normal to Soft Light.
Yours should look something like this, beautiful isnt it?.