Hi Liam 
I use a similar process for my YouTube channel thumbnails. 1920X1080p works great, I usually go down to 1280x720. My question is, what is the resolution of your PSD file? I like to export it as a PNG set to 72dpi or higher.
Before exporting, while you’re in Photoshop, use Comm+1 (Mac) Ctrl+1(PC) to see your image at 100%. That will show you if you have a solid thumbnail for your project. If it looks pixelated then you know its not going to work for you.
“Im just confused why when I open the web image as a layer in the thumbnail its a different quality then it was.”
- Web images are set to 72dpi. What resolution are you using in your PSD file? If it’s higher than 72, like 300, you will see pixilation in your web image.
“also does anyone know how to literally copy and paste an image into photoshop without pressing place embedded?”
- Yes, if you’re grabbing an image from the web, you can Right Click on the image and choose “Copy Image” then paste it into your document. You can also open your image in photoshop, Comm+A= Select All, Comm+C= Copy and then paste into your new document.
It sounds like the image you’re getting from the web is a lower resolution file. If you need more info, please provide us with a link to you PSD and images to take a closer look.
Hope you found this helpful 
Sebastian