On the “Images” tab, you can upload a mask image for each product image.
The mask image is an image that has a transparent area, this transparency defines the customization allowed area while the other parts cover the excess design.
Here’s the image that was used to produce this effect, notice the transparency area:
To make such an image in Photoshop, select the design area and delete it.
If the image is placed on a transparent background, this technique will create a transparent area.