With an image saved on your pasteboard, you can now paste it into your Etsy store banner and resize it as necessary.
First add a new blank layer to the document by going to Layers > Add New Layer. Now go to Edit > Paste and if an alert appears saying that the image is larger than the canvas size, click the Keep canvas size option. This will place the image into the new layer in your banner, with grab handles on the corners and sides to allow you resize the picture.
If the original image is a lot larger than the banner, as mine is, you will need to click the zoom out button a few times until you can see all eight of the grab handles on the image. Now place the cursor over the bottom right corner (it will change to a hand icon) and, while holding the Shift key down to keep the image in proportion, drag the grab handle upwards to shrink the image.
Remember that you can zoom in as you reduce the size of the image to make it easier to size it exactly as you want. When you're happy with the size and positioning, pressing the Return key on your keyboard will set the size of the image. From now on, you will not be able to resize the image as any parts of the image that extend beyond the banner's boundaries have been deleted.
With the image in place, we can add some text to help give the store an identity.