As promised, but in low quality.

Conditions for this example: Want to make a 2" diameter rounded corner. Also we are assuming a right angled corner.

Step 1:

Starting from your corner that you want to round off use a compass set greater than 2". Make marks at the edges. 2" could be used to save a step, but this way the marking lines are not confusing with some future lines.

Step 2:

From the intersection of the edge and marks from Step 1, anchor your compass on each mark and make a cross as shown. Do not adjust your compass. Keep it the same radius that was used in Step 1.

Step 3:

Now draw a line form the corner through the cross created in Step 2.

Step 4:

From the corner in each direction mark off 2".

Step 5:

Draw a line between the two marks from Step 5.

Step 6:

Set your compass to 1" and anchor it at the intersection created in Step 5. You now have a 2" diameter circle that should end up perfectly in the corner.

To do a circle that isn't on a right angled corner (usually near the bottom side of the marquee edges) do Steps 1-3. Steps 1-3 bisect any angle, you might remember this from high school geometry class. Then set your compass to the radius of the circle you want. Then just use trial and error to figure out where on the diagonal line to anchor the compass. You could use trigonometry and geometry to figure out the exact anchor point if you want to.

To cut the corner it is best to use a band saw or rotory tool (like a Dremel). Then sand until you are happy with the results..