There are many ways to skin this cat. For nice straight lines like your example, try this:
For the purposes of being able to see this better, I created a green (0,0,255) matte to put on the sequence fist.
Create a title. Draw a rectangle that takes up approximately one third of the frame. I used a rectangle that is 1280X240. Set it to be 70% black.
Copy the rectangle and paste the copy at the bottom of the frame.
Your result should look like this:
When put over the timeline, apply a Fast Blur set to Vertical and 25% or so.
This isn't the best image for this example but it is what I had on hand:
For something a little different, use a track matte made with a title if you wish. With the original on track one and the copy on track two, darken the clip on track two. I prefer to darken track two and reverse but you can darken one if you wish. You can do this with Brightness and Contrast or you can get fancy with color correction.
Create a title with a white circle or oval or whatever, placed over the subject to be highlighted. (Multiple shapes can be combined in the title)
Apply the track matte to the clip on track two. Check the Reverse checkbox.
Simple. Looks like this:
I didn't blur the matte this time, but I could have. This one would be blurred in the vertical and in the horizontal.
Please note that this does not like changes to the Motion Effect. If you are resizing the clip or image, remember to put the matte in a new sequence and nest the new sequence to be used as the matte.
Now, if you really, really want to blur the edges of the garbage matte, apply the Roughen Edges effect, set the border to 25 and the edge sharpness to zero. Max out the scale for more accurate edges.
