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http://blog.brenelz.com/2009/01/27/png-8-alpha-transparency-screencast/
PNG -24 is what most web developer ’s use for transparency on the web. It tends to have large file sizes but provides excellent transparency. Using PNG -8 or GIF for transparency doesn’t work near as well… at least normally! There is actually a way to use PNG -8 transparency that is better than PNG -24!
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http://blog.brenelz.com/2009/01/27/png-8-alpha-transparency-screencast/ PNG -24 is what most web developer ’s use for transparency on the web. It tends to have large file sizes but provides excellent transparency. Using PNG -8 or GIF for transparency doesn’t work near as well… at least normally! There is actually a way to use PNG -8 transparency that is better than PNG -24!I watched that earlier today and can honestly say I did not know about that until now, it’s gonna save me a ton of headaches and fixes in the future. Great job
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I must admit I did not know about this. But it’s great!
What if one does not have Fireworks though 
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Overall its an interesting technique but not really reliable in most situations. Anything I gain from having alpha transparency in an 8bit png (cross browser support, not needing a script, a single image, etc) is lost by the fact that the 8bit png just doesn’t look that good. I tried swapping out a few in some projects and most the new pngs had some signs of compression, banding, etc that just didnt look that great, in any browser.
It might be good for small icon and littler images, but with large images with lots of details and subtle gradients it just can’t seem to handle it.
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I have sworn by this for a while now. It is great for little icons and rounded corners etc. Another reason why I love Fireworks!
I actually wrote a blog about it back in August so just in case you might find something else useful there, here is my blog URL http://bytesizecss.com* 
P.S. It gets spammed a lot, sorry about that! Haven’t got round to sorting it yet =(
* okay okay, sorry for the shameless self promotion haha
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PNG -8 alpha transparency is my number 1 feature request for Photoshop.
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@GeertDD I agree… why does fireworks have this and not photoshop? Transparent PNGs are used lots on the web.
