First, pick any picture that you want. I'm using this Ashlee Simpson one:
After that, go to layers>promote background layer. You should notice in the layer palette that the picture has turned from a background to a raster layer.
So, now you have to get out your freehand selection tool.
Match your settings to mine:
Now, zoom into the picture about 400%.
Now you can begin cutting. All you do is click point to point around the area you want to cut then double click to end it. I'm going to start with the area around the head. Just OUTLINE it. Do not delete anything yet.
Now when you have the area you want cut out selected, it should look like this
Go to SELECTIONS>MODIFY>SMOOTH
Match your settings to mine:
Press okay. Now you can press delete on your keyboard and viola!
You can always experiment with the smooth amount and the freehand selection smooth amount aswell. I finished mine up, put a cool border & a background and look what I got!
Tips
01 Always cut psds with a dark background behind it so you can see any white spots you missed.
02 Try using a feather of 2 and press delete 4 times to get nice smooth edges if you dislike the smoothing technique.