I am going to use my mom's photo for this demo.
1: Open the photo in Photoshop. (I use Photoshop CS3)
2: Go to yoUr old friend "ROUNDED RECTANGLE TOOL".
3: Draw a rounded rectangle across the photo to your desired size. (Note: I have changed the radius on top to just 0.1 in for this demo, cause the photo is quite small.) This is what you'll see:
4: Whilte you stay on that layer, go to LAYER / RASTERIZE / SHAPE. Now your rectangle becomes a non-edible solid shape.
5: Duplicated the photo by going to the photo layer, then COMMAND+J (The magic short cut that copies and pastes your image to the exact same spot into a new layer above).
Fill your old photo layer with white.
Move your new photo layer above the rectangle layer.
6: Hold down COMMAND+OPTION+G. This will put the photo inside the rounded rectangular shape (or whatever shape you draw beneath the photo layer), like this:
Then just crop the image closer for less white space, or you can just leave it like this.
And here is the finished photo!