texturing with transparency

Whats the best way of texturing an a polygon whilst making certain sections of the textured polygon transparent.

Are the only two ways possible using a texture with an alpha channel or loading your rectangle texture and then making certain colours transparent.

Please can you recommend the fastest and easiest way

The traditional way is to use a texture with an alpha channel.

Is there some concern you have regarding that approach?

Using alpha channel you have no memory impact (the pixel are always stored aligned at 32 bit) the only overload is on the disk.
Is faster and hardware usually make optimization, you can also use advanced technique like alpha to coverage. Alpha can vary from 0 to 255 making the transition smooth.

Choosing one color to be transparent you have ma add instruction to your shader (slower) and can’t make smooth transition.
I don’t see any advantage using this technique.

That depends on the texture formats you choose. You’re probably just thinking about RGB8 vs. RGBA8.