Setting different colors in Photoshop to show cuts and engraves doesn’t work because everything PS does is raster and GFUI is looking for vectors to indicate cut lines.
One workflow is to set up your raster image the way that you want in PS, save, then open in Illustrator in order to add your cut lines. Depending on the shape of your cut, you might do this by using one of the shape tools, or by drawing an outline of your image with the pen tool. If your shape is more complicated, check out this tutorial:
Then once you’ve added your cut line, you can save out the image as an SVG and GFUI will interpret your vectors and rasters as different operations.
If your original image is fairly straightforward, another option would be to open your raster file in Illustrator and use Live Trace on it, then use the Pathfinder palette to crop (I’d draw my crop shape over the top and then use Minus Back). However, if you’re planning on doing any 3D engraving, you are better off leaving your image as a raster and just adding a cutline to it.