Just in case you missed part 1, it's right here, so check it out before returning here ready to finish this tutorial.
Mixing your subject with objects in the scene will help sell the illusion better, so I have placed the subject over the barrel and will now make it look like she is standing next to it. The shadow is causing a problem, but nothing a mask cannot fix.
I added a mask to the folder containing my shadows and then created a path with the pen tool around the offending shadow. This was turned into a selection by Cmd/Ctrl clicking on the path and now I will fill the mask with black from the selection (by ensuring the mask is the active layer before going to Edit -> Fill or Shift + F5)
But... as it turns out, now the shadows look slightly off after that re-adjustment. Well because my shadow layers are in a folder which is masked, I can still select them, shift the shadow around with the distort transform (used earlier) and the mask will not be effected!
Now for final enhancements. Tailor these to your image and fine tune as you need. In my image the subject is way too sharp and detailed to fit in. A higher quality background would help this, but when not available there are things that can be done. Also this is meant to look quite old and wild west in style so it will only aid the photo. I merged the group containing my subject and then added a Dust and Scratches filter to subtly remove some of the detail.
Next I add a little noise by going to Filter -> Add Noise.
And finally I bring this all together with a extremely soft gaussian blur. The blur is not strong enough to make the subject out of focus, it is just enough to blend the effects we just added.
Lastly some more colour balancing with Hue & Saturation to finalise the subject.
That's it! Finished! Here is the final image - looks like she really is meant to be there!
Oh and I did another using the same subject and a different background so you can see what kind of effects you can get! This image was created by layering filters to create an effect that matched the background.
Enjoy! Now go forth and Photoshop!