Open a new Adobe After Effects project and click "Composition" in the menu bar. Select "New Composition" and set your preferred duration and video size.
Click your empty footage bin, then select "Import" from the "File" menu option. Navigate your hard drive and select the two video files you want to composite. One video will act as the background layer and one the foreground.
With your composition time line open, drag both video tracks from the bin down to your time line. It is very important to keep the foreground layer on top. Remember the sheets of paper comparison, your foreground layer is the top sheet and you will need to cut a hole in it to reveal something on the layer below.
Decide what you want to cut out. Common masking techniques involve cutting out a window in favor of a different scene outside or cutting out a current sky and replacing it with a photo of a different sky. Decide what element you want to cut and keep it simple if this is your first mask.
Select your top video layer, and then select the pen tool from the tool palette. This is the tool you will use to cut a "hole" in your video layer. With the pen tool selected, click to make points around the area to cut out. The points will connect with a line to show you where your region is. If you are cutting out a window, click and trace the shape to follow the contour of the window. This region is the actual mask.
On the time line, where your foreground clip's name is listed, click the little arrow to expand and reveal more settings. Click the arrow next to "mask" to unfold that. You will see options such as "Mask Shape," "Mask Feather" and so on. These are keyframe settings that will allow you to animate your mask. Click the little stop watch icon next to "Mask Shape." This means that changes you make to your mask will be recorded.
Look slightly to the right in the next column. You see a drop-down box that says "Add" in it. These options tell your mask how to behave. If you keep the mask on "add" it will add your region to the layer below cutting away everything outside of the mask. If you want to cut away the selection inside the mask, choose "subtract."
Advance your time line about three to four frames ahead. If your camera shot was moving you should notice that your mask has stayed in place and might not match your target anymore. Select your arrow tool from the tool palette and select one of your mask points. You can move it to readjust its shape to match your target. A little tick appears next to the "Mask Shape" stopwatch indicating that it has recorded the change and has filled in animation to move the mask along with the camera motion.
Continue to advance your time line in three- to four-frame increments and continue to adjust your mask. Play back the video periodically to ensure that the mask is always highlighting what you want. If it strays at any point, you can always manually readjust those keyframes.