Reducing image size loses sharpness

before leave without reading whole thing, may able answering 1 simple question:

 

i have background has 8.5" x 11" external dimensions.  in project bin, i'm showing layer (with transparent edges) i've resized 1" x 1.5".  when double-click background put on screen, , drag layer  onto screen, why doesn't look like small picture on top of big one?  instead, it's huge, , have drag down size move tool!

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and now, entire story:

 

running pse9 under mac os x 10.6.8 snow leopard.

 

my project montage of stamp-sized images on letter-size background, in attached -- commemorating woman in centerpiece.  i've stumbled though kind of effort before great success.  time small photos coming out blurry, , it's because time i've done 1 thing differently.

 

in prior efforts, recall somehow reducing outside dimensions of open file 2" x 3" before editing , adding layer big background (using move tool size fit), although during editing working reasonably-sized image , not stamp (probably using command +).  images in final version sharp.   on effort, however, aging brain did not me remember how same way, , ended working original photo, , when added layer, reduced using move tool -- clumsy in view of fact edited layer's image seemed larger canvas building, , final images blurry.

 

i started reading on subject of resizing, way information me absorb before end of new year, , i'd finish work in next few days. (the attached photo current project, , whipped out in day, albeit blurry.)   i'd appreciate if give me brute-force step-by-step way i've done before.

 

the answer first question , big 1 closely related. when combine images, resolution of bottom (background) layer determines resolution of entire image. means if have low-res background (say, 72 ppi) , bring in high-res images (say, 300 ppi) added content huge in comparison size of overall image. when scale move tool aren't doing favors if make large changes way.

 

the best way approach make sure images @ same resolution before start (image>resize>image size). also, make sure background not @ low resolution or end result print badly no matter how time spend combining things.

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