Just clicking on the layer won’t create a selection. I’m guessing earlier in the tutorial, he explained about CTL/Command-clicking (that’s CTL on a PC, Command on a Mac) the thumbnail of the layer in the Layers palette. That will load the opaque pixels of that layer as a selection. Then you should be able to use Modify>Contract.
The next step is saying, while you still have the selection available, select the Rectangular Marquee tool (that’s the one that looks like a box with a dashed outline) and use it to deselect the bottom part of the current selection. Hold down ALT/Option. Your icon will gain a little minus sign. Now if you click and drag, any area of the current selection you go over will be subtracted.
Then it’s just a matter of dragging with your Gradient tool with a white-to-transparent gradient. It will fill the shape made by the selection, white at the top, fading to nothing at the bottom.
Hopefully that helps clarify the points, and I didn’t make you feel like a dummy.
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It is easier to destroy than to create.
More fun, too.