how to edit photo with sunset in background

You can also try group shot in Guided Edit. Scene Cleaner may also work. In either one, you just draw over what you want to move from one image to the other, but it works better if both are the same size/resolution before you start.

The only way to do the merge you mentioned in the second question is to use a 3rd party editor like PSE. With PSE you can do advanced editing like this:

Click to view full size

Which might be a possible solution to your first question, i.e. replace the entire background with one where the sun is not over exposed or not there at all.

There are other image editors that can handle layers but PSE, IMO, is way ahead of them. And a lot of that opinion is based on the fact that I'm very familiar with PSE and PS (so it's a bit biased).

You can use the latest version of PSE in demo mode for 20 days.

Have you tried using the Retouch tool in iPhoto to remove the sun entirely? With the diameter of the tool set to the largest size it might work.

You need to find a photo with a sky background that is big enough to fill the one that you to replace. I go online and look of some large sky images.

Then use the Quick Selection Tool in PSE to select the over exposed background in the photo and delete it. It's the same process I use in this video screenshot to select specific areas of the photo to desaturate:

Click to view video screenshot

Although this was done in Photoshop, Photoshop Elements has the same Quick Selection Too.

Once you remove the background open the new background image and drag it into the first image. Make sure the sky layer is behind/below the other image's layer.