The Pencil Sketch Effect is an "artistic" effect that, like the Watercolor Effect, can be used for dramatic changes at the end of a movie or scene, or at the beginning of a production. You can also use this effect to create a postcard or greeting card type of effect with your videos.
For example, at the start of a vacation video, you could open with a "pencil sketch" version of the beach house or hotel you stayed at, dissolve to the "true picture" and then cut to the live action of you and your family bursting out of the front door. Or, you can end a clip about your trusty family dog sitting by the fireplace by dissolving into the Pencil Sketch Effect while in full motion, apply a bit of slow motion to the clip, and finally finish in freeze frame. If the clip is in memoriam for a pet that has passed on, you could then superimpose the pet's name and birth date and date of death for a tasteful way to close a tribute video.
Premiere Elements does not actually have an effect called "Pencil Sketch" (or anything like it). To create this effect, you'll take advantage of a couple of built-in video effects in Premiere Elements, and tweak them to achieve a close approximation of the look of pencil on paper.