Please check out the AITOC Custom Product Preview extension for Magento.
Custom Product Preview enables your customers to create a preview of the end-product by placing their custom image and/or text over your product image. As Admin, you will be able to upload a background image that represents the custom product and define the printing area, and your customers will be able to upload and position their images and/or text that are to be printed, embroidered, etc. on your products. This easy-to-use and intuitive tool can provide you with an image that serves as an agreement with your customer of what the end-product should look like.
Please play around with the demo store from http://www.aitoc.com/en/magentomods_custom_product_preview.html#demo following the User Manual from http://www.aitoc.com/en/aitdownloadablefiles/download/aitfile/aitfile_id/584/ in order to get a better idea on how it works.
Feel free contact us if you need to modify the standard functionality of the CPP extension or any new features to be developed just for you.