An Alpha channel is basically what allows your image to be transparent. if your cutout layer looks white with just your cut out image on it then you need to go to layer > transparency>add alpha channel, then use the colour selection tool to isolate your image from the white background,
then goto Edit>cut and it should remove the backround leaving the layer transparent with just your cutout remaining. and the layer beneath showing through.
or you can right click the layer and select add alpha channel from the pop up menu.
or you can use the colours menu and select colour to alpha and then select white, but that will alpha-ise all the white on that layer including any white in your cutout
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