Open a reference image in Photoshop Elements. An easily recognizable figure, such as a celebrity face or other piece of popular culture is most appropriate but, if you wish to use your own image or the image of a family member, that is fine too.
Use the "Lasso" tool to outline the person or object and separate it from the background. Click "Edit" and "Copy" to copy the selection. Then, click the "Layer" button and select "Layer via copy" to create a new layer with the image you outlined as its only object.
Select "Filter" and "Adjustments" to find the "Threshold" filter. Select this filter, and adjust the slider to a value between 60 and 80. This will sort the image into black and white based on brightness values.
Create a new layer by clicking "Layer" and then "New layer." Hold the "Ctrl" button on your keyboard, then click on the second layer in the image, the layer containing the cutout piece. This will create a selection around the contents of the object you cut out on your new layer. Click the "Edit" button and select "Fill selection." Choose any color you like from the popup menu, this color will be used for the skin tone.
Click on the "Blend mode" drop-down menu at the top of the "Layers" panel. Choose the "Multiply" option to allow your skin tone to be blended into the image on the layer below, leaving the blacks untouched and the whites completely filled in.
Create a new layer and select the "Brush" tool. Adjust the size of the brush using the "Size" menu such that it is a suitable size to cover details of the image. Select a new color from the "Color" menu and being painting in a detail of the image. If you are painting a person, you will want to color the hair, the eyelids, the lips, the clothing, and possibly other features as well. Create a new layer and choose a new color for each detail you paint.
Create one final layer and drag it down on the layers list by left-clicking and holding while moving your mouse downward. Drop it second to last on the list, just above the base image, and use the "Bucket" tool to fill it in with a single solid color. This will create the background color of the image. Use a contrasting color to make your image pop off the canvas.