From eHow

How do professional photographers make those stunning candid portraits, where the subject is in perfect focus but the background is a blur?

Steps

1. Use a camera with a large imaging plate/chip, such as a 35mm film camera.
2. Use a "fast" lens, that is, a lens with a maximum aperture (opening) of f2.8 or larger. Large apertures, in conjunction with the imaging size, provide very shallow depths of field, that is, they blur the area in front of and behind the subject.
3. Fill the frame (head and shoulders) with the subject.
4. Focus on the eyes.
5. Shoot a series of images with the lens wide-open and stopped down one or two stops. Noses, ears and hair will be in varying degrees of focus. By shooting at various apertures, you'll get to choose the most pleasing image.
6. To make as shallow a depth of field as possible, use a long/telephoto lens set on maximum zoom. Stand as close to the subject as possible, however, if you have a very long lens, this might still be quite far away. and get as close as possible to your subject.
7. If the subject is moving, such as the car in the picture below, you must move the camera to follow the subject. Consider using fast film or setting your digital SLR on a fast ISO setting. Keep your body and the camera as steady as possible, track the subject through the viewfinder and ensure your camera is focusing properly on the subject, and take the photo. This technique uses the blurred background to highlight the motion of the subject, whereas background blurred solely through a shallow depth of field is used to make the subject stand out from its surroundings.
   
   
8. Alternatively you can use Photoshop, select the background and use the Blur filter. However, this Photoshop technique does not create true depth as it blurs everything in the background uniformly rather than independently based on distance from the lense. An image blurred "in camera" collects visual information from a scene that a PhotoShop blurred image can never obtain because the data is not there in a PhotoShop file, thereby making the "in camera" image a much truer and organic image/record.

Tips

• Because of their small imaging plane/chip size, point-and-shoot film (110's with 13 x 17mm imaging size, or Super 8, etc.) and digital video and still cameras (1/3" imaging chip) have difficulty achieving these results. Choose a 35mm film SLR camera (24 x 36 mm imaging size for standard still photography), a digital SLR camera, or a professional video camera (2/3" imaging chip) and equip it with the kind of lens described above. With some long zoom point-and-shoot cameras (6x-12x) you can still get a background blur even without an expensive SLR.
• This effect is caused by a shallow depth of field. Other than imaging size and wide aperture (f1.8 - 2.8) there are other factors that affect the depth of field, including; (a) Focal length of lens (b) Distance from your subject.