Post processing. I use this image editor:
http://www.sagelighteditor.com/
And the effect that creates the blur around the edges is called Fast Depth of Field. I circle the part of the picture that I want to be the clear focus and then I can select just how blurry I want the rest to be and if I want to make the image get darker or lighter as it blurs.
For now I'm using it for fun - in the future I'll use it to blur unattractive buildings so I don't need to zoom quite so close to avoid them.