Make sure Advanced Tools are turned on.
Open the project you want to add the picture-in-picture clip to so that its showing in the Project browser.
In the Event browser, select a video clip or a frame range that you want to use as a picture in picture, and then drag it over a clip in your project.
When you see the green Add (+) symbol, release the mouse button.
In the contextual menu that appears, choose Picture in Picture.
In the Project browser, the picture-in-picture clip appears with a blue border around it above the video clip in your project, and the portion of the clip it appears in is shaded in gray.
Depending on the length of the picture-in-picture clip you added, it may extend beyond the clip you added it to (only if theres another clip after the clip you added the picture-in-picture clip to). To reposition where the picture-in-picture clip appears in the project, drag it to a different spot within the same clip or to a different clip. You can also drag the ends to lengthen or shorten it. To drag an end, move the pointer over it until the pointer changes to a resize pointer, and then drag.
Play back the effect by placing the playhead (the red vertical line) anywhere before the picture-in-picture clip in the Project browser and then pressing the Space bar.
Press the Space bar again to stop playback.