Right now PiP works by drawing a rectangular region on the window, which has some issues:

• You only get one shot; if you mess up, you have to close PiP and start over
• The original window sticks around, meaning you have two copies of the content
• It's unclear what you're supposed to do when you hit the shortcut

Instead, we should switch to a corner grabber design that masks/clips the window down to the chosen PiP area, with an explicit "confirm" button to complete the area selection. Here is a sketch I did a while back:

And here is a rough motion mockup on YouTube.