Okay I understand that inkscape utilizes edge detection (Path ---> trace bitmap), but is that what the user in the videos below is doing?

http://www.youtube.com/watch?v=w7brq6GjaSk
http://www.youtube.com/watch?v=pKeUBVV-vAc

How exactly do you have inkscape use it's edge detect feature for a small individual section of an image?

Nope, they're not using any form of edge detection. They are manually tracing the bitmap using .

You also can't use Trace Bitmap on a portion of an bitmap. You can always trace the entire bitmap and then delete what you don't need, or crop the image before you import it.