This what you have in mind? 
Try the Split-Screen effect.... 
Allows you to crop the clip to take up a predefined portion of the image. To achieve a splitscreen effect, overlay two clips and assign each to different halves.
Another approach would be to place video 2 on track 2, immediately above video 1 on track 1. Use effects to size and position each to complement one another.
That's 'picture-in-picture.' Bear in mind that higher tracks take precedence over lower. An image on track 2 will be layered over the one on track 1.
