Create a class level GraphicsPath object:
GraphicsPath path = new GraphicsPath();
In your mouse Down event, add lines to the path:
path.AddLine(oldPoint, newPoint);
Where 0old point is the previous mouse click location.
Handle the Paint event for whatever object holds your image, and construct a Region from the GraphicsPath. You can then draw as needed within the region:
Region r = new Region(path);
e.Graphics.FillRegion(Brushes.Red, r);