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In step 5, you highlight/select the layer with the anime girl (layer 1). Then you hold the Command/Control key and  use your mouse to mouse click the thumbnail of the layer with the  ellipses, or what they describe as layer C. This makes a selection  (marching ants) of the ellipses. The selection will look like this.......

[ATTACH]48282[/ATTACH]

In step 6, you feather the selection you just made following the tutorials instruction.

In step 7, make sure your layer 1 is still highlighted/selected and then  hit Command/Control + J. This will make a new layer (layer 2) that will  have the ellipses with the girl inside them.

It should now look like this.....

[ATTACH]48283[/ATTACH]

[ATTACH]48284[/ATTACH]