It should look like this:
vb.net Code:
  1. Dim bounds = Me.RectangleToScreen(Me.Panel1.Bounds)
  2. Dim copy As New Bitmap(bounds.Width, bounds.Height)
  3.  
  4. Using g = Graphics.FromImage(copy)
  5.     g.CopyFromScreen(bounds.Location, Point.Empty, bounds.Size)
  6. End Using
  7.  
  8. Me.PictureBox1.Image = copy
Note the use of a Panel for the cut-out. No point using a PictureBox when it won't contain a picture.