There are a couple of ways I do this. The first way is to create a custom video and use that as the source. Using a video editor, import the video and add a fade. Create another video and add the fade out. Then use these videos in LSP. I also create videos to custom match the area I am trying to sequence. Make sure to save using 320 x 260 and 15FPS. When using your transition, try and match then number of frames you created. If you don't the effect may not generate.
The second way is to create a fade in transition. Add a new transition, select Black as the primary, select Wipe as the mask (make sure to enable the mask) and on the 3 secondary tab select your video. You will need a second transition for the middle and a third for the end. This works, but you don't have a lot of control. I prefer to create a custom video.
Once you have created a transition, you can add it to the library for reuse.