Let's assume that we have a new Homepage just about ready to place on the active WEB. Our boss sez ..."The only thing missing is our company logo, and I want right where the red box is."
We have a copy of the logo that was given to us against a white background. If it (figure A.) is just placed in the area where the red box is, well ... it looks like this (figure B). Probably not what the old man had in mind!
Since the GIF format supports transparency, it is possible to select a color and make it transparent. (Question: transparent to what?) It can be made transparent to the background of the WEB page, the selected color will become a clear window, allowing the background to show through.
Notice in the logo (figure C) the rose color was selected as transparent, with the result, a window to the gray background through the red portions of the logo. In the second logo (figure D) WHITE was chosen as the transparent color. The white box has generally disappeared around the logo leaving only a few light pixels around th edge of the logo. These may have been created when the image was originally produced, or when it was reduced in size.
This points-out a pitfall of creating GIF transparencies, if the original image was created against a different colored background, then the resultant "cutout" (that which is not transparent) will be rimmed with pixels similar in color to the original background.
Some of the newer GIF editing programs provide a solution for this, they make it possible to select more than one color for the transparency mode. Since the actually file format does NOT support this, it is usually done by turning all of the user selected "transparent colors" to a single color, and then making it transparent. See figures 1-4 (partial closeups) where various colors were selected and then changed to transparent.