Draw your image on its own layer in Photoshop. Give it any soft edges, transparent areas, etc., that you want, just never flatten the image onto a single layer.
When you've finished, ctrl-click on the layer in the Layers palette. This will select the layer's transparency. You can also right-click and select from a menu in Windows.
Switch to the Channels palette. At the bottom is a button to "Save selection as channel", which you click to create a perfect alpha channel that conforms exactly to the transparency on your image layer.
Save As the image as a TGA file. Make sure Alpha Channels is selected in the save dialog.
As always when working in Photoshop, be sure to also save a layered PSD work file so that any later changes are easy to make.
The Digesteroids sample project has some good alpha-masked files to look at. They are PNG, which I don't think will show the alpha channel in Photoshop, but you can still see the effect by comparing the PNG file in Photoshop to how it is displayed with alpha-masking in the game.
Check the purple halo around the letters on the "lower.png" file. It is painted as a solid purple in the PNG file, but the alpha channel has a graduation to it that shows up on the game screen. You have to paint around your images in this way for the alpha mask to have something to affect.
When you've finished, ctrl-click on the layer in the Layers palette. This will select the layer's transparency. You can also right-click and select from a menu in Windows.
Switch to the Channels palette. At the bottom is a button to "Save selection as channel", which you click to create a perfect alpha channel that conforms exactly to the transparency on your image layer.
Save As the image as a TGA file. Make sure Alpha Channels is selected in the save dialog.
As always when working in Photoshop, be sure to also save a layered PSD work file so that any later changes are easy to make.
The Digesteroids sample project has some good alpha-masked files to look at. They are PNG, which I don't think will show the alpha channel in Photoshop, but you can still see the effect by comparing the PNG file in Photoshop to how it is displayed with alpha-masking in the game.
Check the purple halo around the letters on the "lower.png" file. It is painted as a solid purple in the PNG file, but the alpha channel has a graduation to it that shows up on the game screen. You have to paint around your images in this way for the alpha mask to have something to affect.