Well for those who have photoshop......start with a reasonable size 512x512, or 256x256...? wichever tickles your fancy!!!....
Then...
Make the first layer transparent(default in photoshop - grey and white checkboard)......second layer make your picture....then select the areas you would like transparent, then go to select(inverse) so that you hace the image you want to show selected....
Next click on the channels tab-right side of screen where you have your layers.....and when in channels tab press the create new layer button, in this case it will create an alpha channel......
This will be all black with the dotted line of you selection - Fill this selection with pure white..
and thats it all done...SAVE YOUR IMAGE AS A (TGA) file and load it up in the particular game it was meant for!!!! have fun any Q's PM me.