Thumbnails, that link to your photograph files, are located in Folders on Disk on the left side of the screen.
The folders are not located in Picasa.
Rather, they're probably located in My Pictures.
You can use Picasa to navigate to where a photograph file is located.
Right click a thumbnail, and click Locate on Disk.
Do not edit, delete, add new files, or most anything else, to the files.
Use Picasa to do the above.
If you don't use Picasa, it won't know what you've done to the files, and will become confused.
Do the following to open a photograph file in Photoshop Elements.
1) Open Picasa.
2) Browse to the file of your photograph in Folders on Disk.
3) Right click on the thumbnail.
4) Click Open With.
5) Click Photoshop Elements.
The photograph file will open in Photoshop Elements.
When you double click a photograph file, your computer is set to use a certain program to open the file.
This default setting isn't Photoshop Elements.
If you'd like to open photographs in Photoshop Elements, go to Open With.