For this tutorial I'm using Photoshop 6.0. Transparent PNG's are basically high quality transparent gifs, except the fact that they're not very transparent in most browsers. So don't try to use them that way. They're good for using in the making of graphics, a nice alternative to PSD's. Well, let's continue with the tutorial.
Click on a thumbnail for a larger image.
First you need to select an image to work with. Paste the image as a new layer, I like to use a lime green color as my background to help find any stray parts of the image I may miss in cleaning the image. To cut the image out I use a combination of magic wand, magic lasso, and the erase tool. I mainly use the erase tool, as it's a bit more accurate. But that's only if you have a steady hand and are good with detail.
Now, after a lot a erasing, we have our clean image.
Now, turn off your background to make the image transparent.
Go to File, and select 'Save for Web'.
Choose to save your image as PNG 24 with transparency, and save. If you're using a grayscale image, choose PNG 8. This will greatly reduce your file size.
I know that Photoshop isn't that great at PNG compression, but I haven't gotten around to getting a program to compress them better. Hopefully this tutorial will help those of you that didn't know how to make a transparent PNG. Sometime down the road I may get around to writing one for PSP, but not right now. ;)