By “manually create an alpha channel” I think he means this:
At the moment I guess you’re loading your image into an RGB bitmap - one with 3 bytes per texel, 1 each for red, green, blue. Instead you need an RGBA bitmap, with an extra byte per texel for alpha making 4 bytes per texel total.
Load the color components as normal, then check to see whether they match your “invisible” colour. If they do, put 0 in the alpha byte. Otherwise, put 255 in the alpha byte. (I think Nate got these the wrong way round.)
Alpha represents the “opacity” of a texel; 255 is fully opaque, 0 is fully transparent. It’s a lot like generating a blitter mask on the 'Miggy, except that it can do partial transparency rather than just on/off, and the alpha is stored together with the colour info, rather than separately. (i.e. texel data is chunky rather than planar - be thankful!)
Great I seem to have this working 95% now. The problem now is the underlying polygons color seems to show itself through the transperant parts of the texture map. Im not sure what to do here