Transitions are set per clip edge, the way editors think about them. The layout never changes: a dissolve borrows handle frames instead of eating your cut points.
Select the outgoing clip Click the first of the two clips around the cut. Transitions live in the inspector's Animation tab.
Pick the exit transition Choose dissolve, a slide direction, a zoom punch, fade or dip-to-black for the clip's trailing edge, and set the duration.
Preview the cut Scrub across the boundary. The preview composites the transition the way the export will, including any effects on the outgoing clip.
Mind the audio Give the two audio clips overlapping fade-out/fade-in for a crossfade under the picture.
Tips
Cross-dissolves need the outgoing clip to have unused source footage past the cut (handle frames). A clip trimmed to its last frame holds that frame instead.
Effects carry through: a keyed or graded clip stays keyed and graded mid-dissolve.
Fades and dips work at a video's start and end too, which is how you get the classic fade in from black.