Basically during physics class I had a video camera and recorded something. My teacher now wants me to make a motion diagram like this:

 

I went to photoshop and imported the video to layers. Then I added masks manually to each layer to create the effect. While this one was fairly simple, is there any software that automatically can do this? We already have adobe cs5 master collection and windows 7.

Not entirely sure what you are looking for:

If you want to create images easily like the one you made, you would need a properly set up green screen as the uneven background doesn't work well for image editing, or you could use the fake greenscreen function of video editing software(imovie has it from my experience) though these require a similar setup to greenscreen to make even low quality images (if you bump the camera at all there goes your ability to use the fake greenscreen function).

If you want to make a graph out of the video Vernier's Logger pro is the only software that I have experience with that would work well, as it can take video input and put it into a somewhat simple user interface. specifically for your situation it would allow for automatically setting a scale for the image, and then data input for each frame of an objects movement requires a single mouseclick, and it allows for tracking several objects at once. Your main issue would be that if your school does not have the software, then you would not be able to use it (it costs $189) and they would be unlikely to purchase it without grants for it as it is meant to be used with other equipment. (my high school had a medium level physics lab setup that cost over $1000 per station using Vernier and Pasco equipment)