Extracting and Colorizing
A good way to extract an image with lots of colors in it that has similar colors in the surrounding area is to create a new duplicate layer and paint around the image with an off color that is not even close to anything in your photo; zoom in and change brush size (use a hard round brush generally or a square one on straight edges) to get all the outside area around your image. If you make a mistake, switch to erase. Save often so you don't have to redo from scratch. Then set the tolerance to a value that works and check the Contiguous box. When you are satisfied with your result, extract using the Magnetic Lasso tool.
I haven't done colorizing, but I have a great book, Digital Restoration from Start to Finish, Second Edition, by Ctein that will show you how to do it.