Open the image you want to work with. Once again I'm working with a picture of Almost Willie.

The file I'm working with contains two layers. The background image, and a Curves adjustment layer. Notice that I'm starting off with the background layer selected in the layers palette.

Use the Rectangular Marquee tool (M) to make a selection the size and shape of the snapshot outline.

Use Select > Transform Selection to fine tune the position of the selection which will become the outside edge of the snapshot. Once your selection is in place copy the portion of your image that is inside the selection onto a new layer by pressing (PC: Control + J, Mac: Command + J).

The image for the snapshot is now on its own layer. Next we'll add the border to the snapshot. Click on the Add a layer style button in the layers palette and select Stroke... from the list.

Here are the settings I used for the stroke to create the snapshot border. You may need to fine tune the size of the stroke. Make sure that Position is set to Inside. Don't click OK just yet!

Here's what the image looks like with the stroke applied.

We want a drop shadow under the snapshot so it looks like it's above the background image. In the Layer Style dialog, click on Drop Shadow . Here are the settings I used. You can set them to your liking. When you're done setting up the drop shadow, click OK to close the Layer Style dialog.

Here's the snapshot with a border and a drop shadow.

At this point your layers palette should look something like this. We want the snapshot to stand out a bit more. We'll use a levels adjustment to make that happen. Press (PC: Alt + [, Mac: Option + [) to target the layer under our Polaroid.

Click on Create new fill or adjustment layer in the layers palette and select Levels... from the list.

Here are the settings that I used. You may want to modifiy the setting to your liking. When you're done, click OK

Here's what your layers palette should look like after adding the levels adjustment layer.

photoshoplayers palette

And here is the final image.