The first image is the way I received it (downloaded from a free vintage graphic sharing site but unfortunately I don't know which one). I wanted to use it layered over some digital designer paper I had and I didn't want it to look like a square block sitting on the paper. Using the Magic Extractor in PhotoShop Elements, I removed all the background leaving only the image itself. And rather than reinvent the wheel, here is a tutorial I found on the web that tells exactly how to do it. I will tell you it is a little fussy and time consuming. It's not quite as clean and easy as the tutorial shows. After I used the Magic Extractor, there were still areas that I removed by using the eraser in the main edit panel. You can enlarge the view and make your eraser point very small to get into all the small areas that the Magic Extractor didn't removed. It took me around 20 minutes to do the complete job. I don't mind because I am a slow fussy crafter. Plus I enjoy messing around with digital stuff to stretch my art. Once I had the background removed, I opened my digital paper, layered this image over it and then reduced the opacity to give it a faded look. You will need to save the image as a .png file so it has a clear background.
Hope this helps those of you who are interested in this process. If you have any questions, let me know. I am definitely not a PSE expert, never taken a class. Everything I know has been learned with the help of tutorials such as the link I shared above and my trusty PhotoShop Elements for Dummies book.