Making Video edges fade into background?

Does anyone know how to make a video's edges fade into the background? Such as the Grammy's new website? http://www.grammy.com At the top of the page there is a grammy logo with the numbers 1,2,3. When you push 2, a pic of beyonce and prince comes out then a video clip is played. I would like to figure out how to create that faded edges effect. Any suggestions?
Thanks.

This type of effect is done in After Effects, at least the video portion is. It looks like a feathered mask effect.

Cool thanks. I'm going to try to figure it out then.