I posted two solutions for a similar requirement here
Basically you have two options.
1- Get a graphics object for the desktop and start drawing to it. The problem is if you need to start clearing what you have previously drawn etc.
Point pt = Cursor.Position; // Get the mouse cursor in screen coordinates
using (Graphics g = Graphics.FromHwnd(IntPtr.Zero))
{
g.DrawEllipse(Pens.Black, pt.X - 10, pt.Y - 10, 20, 20);
}
2- The second option that I provide in the link above is to create a transparent top-most window and do all your drawing in that window. This basically provides a transparent overlay for the desktop which you can draw on. One possible downside to this, as I mention in the original answer, is that other windows which are also top-most and are created after your app starts will obscure your top most window. This can be solved if it is a problem though.
For option 2, making the form transparent is as simple as using a transparency key, this allows mouse clicks etc. to fall through to the underlying desktop.
BackColor = Color.LightGreen;
TransparencyKey = Color.LightGreen;
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