I'm having trouble editing one video over the other. What I want is in the foreground the video of my two characters talking, and then to delete the "background of video 1" to replace it instead with the video 2 (With the same two characters in it).

Basically its like I want to use a green screen. How do I go about removing the unwanted area of Video 1, so I can show video 2?

I know it can be done with Avid as I watched a pro do it when I was interning.

Thanks for any help

You need to shoot you two characters against a green screen or blue screen, make sure the background is smooth and is evenly lit. Then using your software look for an effect either called Chromakey or Colour key. In both of these you can select a solid colour (same as your background) and the software will make it transparent so the video on the other layer will show threw.