Photoshop layers feature are great at pasting one image onto another and blending the pasted image into the background layer by changing the blend mode. The layer blending modes control how the colors in the top image combine with the pixels in the underlying image. They do not affect the texture of either image.
That's where displacement maps come in. To make a image blend into the texture of the base image and make the final image appear more realistic, you can use a displacement map.
A displacement map is simply a grayscale version of an image saved as a Photoshop file. The Displace filter then uses the displacement map essentially as an applied texture. The black areas are the low points and the light areas are the high points of the contours of the original image.
You create a displacement map of the background image and save it as a PSD file. Then you apply the "Displace Filter" to the second image to be placed of top of the background image.
In this example I showed you how to simulate face painting with a displacement map. But you'll find many more uses, should as wrapping text and textures to irregular surfaces. Once you see how easy it is to work with displacement maps, you'll make them a ready tool for your photoshop toolbox!