Something like this? http://jsfiddle.net/eW9kR/1/
Please do tell me if this isn't what you're going for, and i'll do my best to help.
Edit: Having seen your better description, i came up with this solution: http://jsfiddle.net/dPLDr/1/
Basically, you first create a wrapper, div.wrap to hold the other divs. In that, you then place your two divs.
<div class="wrap">
<div class="big"> </div>
<div class="small"> </div>
</div>
You then set a width on the wrapper.
div.wrap { width: 300px; }
This makes sure that the divs contained within will expand to 300 px unless told not to.
We set a background and border on our contained divs ..
div.big, div.small { background-color: #F00; border: 1px solid #000; }
You can then set whatever height you want on the big element, and a width and height on the smaller element. Then, you need to position your smaller div where it needs to be, i chose to float it to the right based on your illustration.
And now comes the magic: In order to give the impression of a continous border, i remove the top border from the small element, and position it -1px relative to its original position on the Y axis. That way, it overlaps the big divs border, obscuring it.
div.small { border-top: none; position:relative; top: -1px; }
Finally, you set the appropriate border-radii. et voila.
However, the top left corner of the smaller div is problematic, since it needs to be rounded away from the div in question. I attemped to make a workaround, but couldn't get it to look well with only CSS and HTML.
As a pointer in the right direction though, make a 5px x 5px PNG that looks like said rounded border should, place it in the smaller div, and position it -6px relative on the x axis.
Good luck!