You can achieve this by placing the second video on a lower track and resizing it in the preview window. Anything on a lower track overlays the content of higher tracks.
To resize select the clip in the timeline and you will see an outline with grab handles appear in the preview. Simply grab one of the handles to resize. The aspect ratio will be maintained.
To move the resized area place the cursor within it, hold down the left mouse button and drag.
Regards,
Mike
Home-build system:
Intel Core i5 Quad Core 3.3GHz, 2 x 4GB DDR3 1333MHz,
Asus Nvidia GT440 1GB, 2 x Western Digital WD10EARS 1TB, 1 x Seagate ST1000DM010 1TB,
Windows 7 Prof 64-bit, PD 9 Ultra 64, PD 13 Ultimate 64