If I were to print a image on a transparency and hold it really close to my eyes (the same distance as glasses on my spectacles) the image would become blur and I would be able to see the background environment. Is there a way so that I can transform the image such that the image is viewable as an overlay to the background.
That would be an optics question, and not an image processing question. Basically you need lenses to make the apparent image appear farther away where the eye can focus on it better. This is how all head worn heads-up-displays work.
You can't "un-fuzzyfy" the image in software, print it on a transparency, look through it, and expect it to somehow be in focus. Physics doesn't work that way.
As for how to use lenses to make it work-- I don't know. I'm not that good with optics.
If You insist on this:
it is impossible. How that can be done look for the 3d headsets sold in the nineties as a gadget for computers. This were small CRTs fastened on the side of ones head, the CRT image side forward. This image was "mirrored" in the eye with the aid of lenses, mirrors an a prism. I assume that similar things are available still for PC games