When you make a selection click in the "add layer mask button", you'll notice that a new layer apear linked beside the image layer, now the black zones of this layer are hiding the not selected pixels of the image.
The mask can be modified in some ways:
Click in this layer to select it, now the the background and foreground colors are black and white, you can paint in this layer with brushes and different opacity, you can also work with gradients to mask/unmask the needed parts of the image
Click in this layer with the Shift key pressed to disable this mask and a red cross will apear in the thumbnail of this mask
You can restore the selection clicking in the mask layer while the CTRL key is pressed
If you click holding the ALT key the mask will become visible as an image in black and white
For this tutorial I have made a layer filled with pure green behind the image I'm masking to check the result
With your image in a layer pres the "Q" key to go to quickmask mode, now pick a brush and begin to paint over the unwanted zones of the image; you'll notice that you are colouring with red and these parts will be selected after you press "Q" again
Masking in this way is quite frustrating and almost impossible in some zones, but it's cool if you want to make some effects with gradients or for simple selections
This way is quite basic too. Go to the menu and pick Filter>Extract, a new window will appear, and you may circle with a brush the part you want to keep and then fill it in with the paint bucket tool. When everything is done press the ok button, now you're back in normal mode but with the unwanted parts of the image ERASED, if you make a mistake or you are not satisfied with the result the only way to come back is begginning again. :(
Select the pen tool with the "paths" mode, add the necessary points in the corners, add new points clicking in a segment, drag the new points you make holding CTRL key to make curves.
When you have finished your path go to the path window, click twice in the "Work path" and apply a name to this path
Now click with the right button in this path and select "Make selection...", see the settings below and press OK. Now the selection is done; click the "Add layer mask".
You will notice that the edges are very sharp when you make a mask in this way. To correct this select the mask layer and go to Filter>Gaussian Blur a radius between 0,5 - 2,0 will soft the borders enough.
Masking in this way is good for basic and well defined shapes but it's impossible to mask complex images like hair or trees. This is not a good choice if you want to keep the trees on this image.
Using the classic selection tools, like the lasso and the magic wand you can make very accurate cut-outs.
Select the magic wand with a 30 in the "tolerance" field, click in one zone of the sky and holding SHIFT click in the other zones you want to hide, invert the selection (CTRL+SHIFT+I). Now press the add layer mask.
The masking of the trees is almost inexistent and needs improvement, to do this click "Select" in the menu and pick "Color Range...", in the new window pick the color you want to hide and play with the fuzziness to see the range of your selection. When you are satisfied with the preview click ok, now you are back with the selection enabled, select the mask layer and press the DEL key to hide the selection.
The mask borders are very sharp, to correct this go to "Filter>Blur>Gaussian blur" a radius of 1,0 should work ok
This is the more complex-but-easy way to mask, you can obtain very good results in only a few steps
Go to the Channels palette and select the most contrasted channel, in this case this channel is the blue one.
Right click in this channel and select duplicate channel.
Go to this new channel and modify the brightness/contrast to obtain a very contrasted image with the zones you want to keep in black. Now disable this channel and enable the RGB channels of the image.
Now go to the menu, click Select>LoadSelection, in the channel field select the modified channel, mark the Invert box, and in operation check "New selection"
Now the selection is done, click the "add layer mask" button.
Now the borders are very sharp, apply a gaussian blur filter to the mask layer to soft them a bit.
Select the sky with the magic wand, invert the selection and click in the mask layer holding the ALT key, pick the white color and paint in the balloon the parts you want to be unmasked.