Few image formats allow for transparency. GIF, PNG, and TIFF (check me if I’m correct on this list) all have the ability to display transparent pixels because they have an alpha channel. This means that they must also be 32 bit. Standard RGB files are 24 bit (8 bits per channel). The alpha channel contains yet another 8 bits of information that tells the computer to display as transparent.

One dilemma I’ve faced in using GIFs on web pages is that they create a white halo around the image. I guess this is why I usually see jpg images matching the background for rollovers. Go figure.