There are many, many ways to create the photographic edges like the one you see on the right. One common method is to create a masking layer in Adobe Photoshop and use the paint or airbrush tool to "chip away" at the edges. That is fine, and gives great effects, but I use Adobe Illustrator a bit more frequently, and wanted some thing a bit quicker.
Step 1 is to Open Illustrator and Place your image (File=>Place). You can choose to embed or link your image, the choice is yours.
Once the image is placed on the page, you then add a transparency level using the Transparency Window. Just double-click on the black box to the right of the image thumbnail, and your transparency mask layer will be added.
Your Image will disappear briefly; you need to add a mask. Draw any shape (I used the rounded rectangle) with a white fill and black stroke. You get the edge effect by adjusting the stroke.
I have found the best results were obtained by using Artistic_ChalkCharcoalPencel or the Vector Packs Grunge kit... or you can design your own brush.
You can modify and tweak the results by adjusting the stroke size, stroke color position, etc. In the sample below, I changed the stroke width to 3 and used gray instead of Black. You can get interesting effects by applying a gradient to your transparency mask as well!
When done, just save the result and a 24-bit transparent .png.