How to create a pointer or a custom title
First of all: This is no documented 'feature' of iMovie, it is a workaround! For instance, you will probably notice some stutter or no playback at all of the inserted graphic in iMovie; in the exported movie, your graphic will appear flawless. And you can apply only one graphic per clip - if you need more, split the clip or create a graphic containing all elements,
// Read the updates for iMovie vers. 10 aka 'iMovie13' down below //
Step #1)
Set-up iMovie
In iMovie11's Preferences, switch on 'Show Advanced Tools'
In the Project Properties, set 'Initial Photo Placement' to Crop
Step #2)
Creating a Pointer/Circle/Title
I prefer to use a designed paint-tool such as Pixelmator; for sure, you can use any other 'paint'-app, which supports transparency.
In my painting app, I'm creating a new document.
HINT: this document has to have the same aspect-ratio as your video; 'widescreen' is 16:9, standard is 4:3.
recommendation: choose your videos resolution, such as 1280x720. dpi is of no use in video.
as you notice in the screen-shot, I'm starting with an empty, transparent background (indicated by the checkerboard) - we had reports, adding transparency later by selecting/erasing a background can cause 'borders' by undefined selection.
best practice: paint on transparency!
Save as .png
HINT: only png (or tiff) preserves transparency! As a jpg, the transparent background will immediately get solid white.
Step #2.1)
Creating a pointer without additional software
You can 'abuse' your Mac's pre-installed Preview.app as a painting tool:
open any picture with the correct aspect-ratio, here: a screen-shot of a video, select all (cmd-A) and hit delete/backspace.
Now, the frame is 'empty', ready for painting.
Use the annotation tools of Preview (click the little stencil in the menu-bar, select circle/arrow/box/text) to create your graphic.
Save that new graphic as .png
Step #3)
Add, size and place graphic
Drag the .png from its Finder location onto the clip in the project.
Releasing the mouse will offer you a context-menu, choose 'Picture in Picture'
You're now allowed to move, size and place your graphic wherever you want it - well, not exactly: there's some limit in size, a full-screen is not optional (example: to create a key-hole effect)
Inspiration:
that same trick, using a transparent.png allows many other 'effects': think of speech-bubbles, a 'censored'-bar or customised titles as in this example:
update, for usage in iMovie vers.10:
There's no manual switch for 'Advanced Tools' anymore - all its features are avail by default.
Just drag 'n drop/import your overlay into your Project onto the clip you like to highlight.
Be sure, your Video-Overlay settings are set to 'Pic-in-Pic', by default it is set to 'Cut away'
Be sure, your overlay graphic has an aspect ratio of 16:9 - otherwise iMovie will cut-off parts of it.
Be sure your overlay graphic is saved as 'png', to keep transparencies.
In iMovie vers. 10 you can apply several Pic-in-Pics over a single clip.
You can stretch a Pic-in-Pic to 'full screen'; this allows to create a 'dim effect' by adding a (here: 75%) opaque grey in your overlay graphic:
And, no, you can NOT animate nor 'track' such a pointer in iMovie.
Enjoy movie making!
k.