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On the layer with the square (using your image example) you can put a Gaussian Blur on it to give it a soft edge.
If you only want a certain side you can use the rectangular marquee tool to select an edge... you'll need select a nice chunk so your blur doesn't get cut off. And with the marching ants still going use the blur tool. If you want multiple corners hold the shift key to select another side with the marquee tool.
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