Do you see where the cast on sts are between the sleeve sts? The armhole will look something like this \__/ and you pick up sts in the __ part of it, which is between the sts on the purple yarn. They're knit on the body, but the the other direction and you pick up in the base of them to make sts for your sleeve. There's a video for picking up sts on the Tips page, and while that shows picking up from the edge of a piece, you do the same thing in those CO sts. Just insert the needle into a stitch, wrap the yarn around it and pull through.
sue- knitting heretic