Display two images with gd

Hello, we have:

header("Content-type: image/png");
$msg = "Hello world.";
$pic = imageCreateFromPNG("http://mypic");
$color = ImageColorAllocate ($pic, 255, 255, 255);
ImageString ($pic, 3, 140, 22, $msg, $color);
ImagePNG($pic);
ImageDestroy($pic);

I want to include another image in this image.How can I do that?
I can't include,readfile, html <img src.. what about other way?

Will the other image simply be placed over part of the original image, like a watermark?

Or, do the two have to merge, such as transparency colors and such?

More like watermark.

http://www.google.com/search?q=php+gd+png+watermark

Thanks. :)