I have two textures: background and mask. I need to make output that mask defines what is revealed form background. Very important part is that mask needs to be less size then background I will move it in runtime revealing parts of background.

Project is on WP7 so there is limited BlendState manipulation.
You can use the built in AlphaTestEffect with the Stencil Buffer to achieve the masking you are after.
The steps are:
The Crappy Coding article Texture Modification using Render Targets, with some Stencil Buffer Action shows how to do this and has working sample code.