Okay, I'll do a quick tutorial.
Your Goal? It's to get from this

to this

.
Rounded edges look so smooth don't they?
Right. Let's get to the point.
1.

You have a picture, and a transparent layer below it. Add another layer, by clicking on the "Create a New Layer" button just beside the one that looks like a trashcan.
2.

Now you got 3 layers! Alright. So, go click on the "Rounded Rectangle Tool(U)". Click at one corner of your image and drag it to the other diagonal corner. Now your pic's covered. Don't worry.
3.

Click on the tiny icon that looks like an eye at the left side of "Layer 3". So now you can see the image. This step is quite redundant but just so you won't panic!
4.

Then you gotta press [Ctrl+Click] on the sidebar, on the text of the layer named "Layer 3". The names may differ but you should know where the layers are.
5. Click on the rectangular marquee tool, the one which you use to select a portion of an image?!! Yeah. That one, on the upper left hand corner vertical toolbar of your working space. You should have a crosshair cursor now.
Then right-click on the image itself, and "Select Inverse".
6. After that, click on "Layer 2".
7. Press "DELETE" on your keyboard!
8.

Then delete "Layer 3" and you should get that (up there).
Cool?
Okay. Save it as .gif file 'cos it supports transparency... and you got your rounded edge icon!

You can use that method for other images you want to crop to have a nice, smooth, rounded edge too. That's all!
QUESTIONS?!
Comment then, I'll get back soon. :)