Look in the Selection tool on the left hand side. If the rectabgular marquee is showing click on it to show the flyout, and the elliptical version will show up. But I don't really see how you can do what you want with this tool. You could create a vignette quite easily, but how to get it to fade???????
OK, just tired it in Photoshop. It's easier to start at one corner and drag the selection to the opposite corner that is, top left to bottom right. When satisfied with its size, choose Inverse from the Select menu. This will give you a selection in the shap of a vignette. You just need to choose a suitable fill. Use the Paint Bucket tool for this.
I'm not really that familiar with Elements, but from memory, if you choose the Paintbucket tool, then on the tool options bar you can choose either a foreground colour or pattern from the Fill option. Or choose a Gradient (you can make your own) with the Gradient tool, which I think is below the Paintbucket.
You can probably define the tolerance of the fill from the options palette, If this it what you mean by keeping parts blue. Also you do need to make sure that the area you have selected is what you want to fill.