Here's how to create a selectively colored photo using Photoshop 7.0. (I believe it will also work with Elements)
1. Open your image in Photoshop.
2. In the Layer menu select: Layer > New Adjustment Layer > Hue/Saturation
3. When the Hue/Saturation box opens, change the saturation to -100. You now have a new layer that is in black and white.
4. Click on the eraser tool. Now erase over those areas that you want color. If you make a mistake, use the regular brush tool to return that area to black and white.
5. Change the opacity as necessary when you near the edges. The opacity is located at the top of the screen.
6. When you're done select Layer > Flatten Image
7. Save

Here is an example: http://www.scrapbook.com/scrapbook_layouts/showphoto.php/photo/34339/password/0/sort/1/page/2