Step 1 - Start with two layers. In this example the picture frame goes on the top layer and the clouds goes on the bottom layer.
Step 2 - Select the Rectangle Tool (U) and draw a square that covers the inner center of the picture frame.
Step 3 - Draw another square that covers the entire picture frame.
Step 4 - Select both rectangle layers and choose Layer > Merge Shapes.
Step 5 - Select both shapes with the Path Selection Tool and choose exclude overlapping shapes.
Step 6 - With both shapes still selected choose Edit > Copy.
Step 7 - Click on the layer with the picture frame to make it active and choose Layer > Vector Mask > Hide All.
Step 8 - Choose Edit > Paste to paste in the rectangles.
Step 9 - Delete the original rectangles layer.