Mini Sprite Editor supports single bit transparency using
color keying. This means that a single color is set as the "transparent" color and any pixel that uses that color will be ignored by the game engine. Usually the bright
fuchsia color (Red=255, Green=0, Blue=255) and is used since it is hard to find in most images, but this can be configured using the
Colors →
Color Key menu option. The default palette has the bright fuchsia color at the bottom right side of the palette window.
In the editing area, Mini Sprite Editor will show a diagonal pattern where the transparent color would be (assuming a large enough zoom level) and in the tiled preview/animation window it will use a gray-ish noise to simulate a background.