Yes, that is motion blur. It looks like it was added with photoshop, however can also be accomplished by panning the camera with your subject.
If you are using a point and shoot digital camera, it will be difficult to accomplish a shallow depth of field image due to the sensor size. You could shoot with a aperture (F/stop) of f/2.8 and still have 2 or 3 feet if not the entire scene in focus. That makes these little cameras great for people wanting to shoot macros getting alot of the object in focus but a bit*& for anyone wishing to get the shallow depth of field.
If you are using an SLR style camera a cheap lens that does this great is the 50mm f/1.8 or f/1.4 I think both Nikon and Canon make these model lenses and they are quite reasonably priced.
I think this image was taken with the 50mm, notice the object the blacksmith is striking is in focus while all in front and behind is not. The portions not in focus are referred to as Bokeh. The further away from the focus point you get the more blurred the objects will become, so ideally the more blurred you want the background the farther away it needs to be from the subject.