Step 2: Editing
Similar to the alignment step. Set image 2 to 50-80% transparent, dont adjust image 1 and turn all other images to 100% transparent/invisible/off.
Now approach your editing as you would a set of stairs. Step 1 at the bottom, the second step sits on top of it, and the third in turn sits on top of of the second. You can cut away any part of the second step as long as there is a piece of the first step below it. If you cut too much away you will see all the way in to the basement, aka the background layer.
In the example image where I've practically sliced image two in half and followed the outline of the rider fairly closely, I didnt have to be so exact. You can set your eraser to 50% and blend the two images together, try it, you'll see what I mean.