A transition has to have an overlap to work with.
In some programs, the transition when placed will reveal what is after the out point of the outgoing clip and what is before the in point of the incoming clip.
With PD8, inserting a transition will (in the case of a simple crossfade for instance) fade out the outgoing clip up to the out point you chose, and fade in the incoming clip from the in point you chose. So long as you know how it works, you choose your out and in points appropriately.
The PD8 method has the advantage that if you have allowed no overlap - in other words, you are using the full length of the original clips - it takes care of that, whereas some programs in that situation will use a still from the beginning and end of the clip, which can look rather odd.