Key reasons to use this feature:
The webcam recording feature is available to all Screencast-O-Matic plans.
Select either "Webcam" or "Both" to when launching the recorder to activate the webcam.
You can resize/crop webcam window for PIP by dragging edges of the webcam preview on the screen. In the picture below, I've increased the height of my webcam window vertically.
You can toggle the webcam preview to be large and centered or small and in the corner. Do this by clicking the small arrow in the lower left corner of the webcam preview.
You can temporarily hide the PIP webcam by clicking on the tray icon (shown below) for the webcam so it minimizes. Click on the same icon again to unhide the webcam window.
Why can't I see the webcam window when using the browser in full-screen mode?
Due to how ChromeOS implements full screen, the webcam picture-in-picture will be hidden if you choose to put your web browser in full screen mode.
Why can't I see the webcam window when recording an application window?
The implementation of ChromeOS is such that recording a specific "Application Window" (instead of "Your Entire Screen", see image below) does not allow for an overlay such as the webcam to be recorded as well. If you decide to record with the webcam but have chosen to record only a specific application's screen, you will not see the webcam output in the final recording.