But to place a PIP image over a background put the image on a track above the background. Then apply Video FX "Vegas Picture In Picture" to the image and adjust its size as required. By default VMS sets up a new Project with a track that has this Video FX already applied to it. It's labelled Picture-in-picture. Click on the Track FX button to get the adjustment pane.
Personally if it's just one clip that I want to PIP I prefer to add the FX to the clip (event) rather than the track.