For those who don't already know what an alpha channel is, here's something I made up that tries to explain it. If you already know about this stuff ... well, you don't need this, then, do you? :)

This isn't a tutorial about any graphics software in particular -- many programs support alpha transparency, and what I say here holds true for any of them.

Actually there are other forms of transparency, but as far as I know alpha transparency is the best one. GIF files do transparency by defining one of the colors in the palette as the transparency value, so you sacrifice a palette color to get transparency. And you can only have one level of transparency; you can't do smooth transitions with a GIF.

If you have questions about channels and alpha, I'll try to answer them, and if anything's unclear, I can use your questions to improve my tutorial!