Ahh, the old "square background" thing. The fix is rather simple, but hidden. You don't want to erase the canvas or anything - just keep it some color that you're not using on the monster.
Time for a random walkthrough with a bonus animated GIF! Your monster (I'll call him "Phil") should be following the standard 256 color rule already.
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1) Go into the Resource Manager. (Tools -> Resource Manager, or click on the icon to the left of the musical note in the toolbar)
2) Click on Monsters in the left pane, and click "Import"
3) Find Phil's graphic, and click Open.
4) Now, here's where you set transparency. You'll see a preview of good ol' Phil, with background and all. Click on the background,
and wait until the background blinks! When the background is blinking, that indicates a transparent color. If it doesn't work the first time for some odd reason, click again.
(Ahh, grainy animated GIFs)
This works the same for ALL graphic files, including Tilesets/Chipsets and the like. Don't forget to do this for every graphic you import...
As to Photoshop things, I don't have Photoshop so I have no idea how the UI is layed out. In MS Paint though, you'd just use the pencil..
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And I coudn't find a template, so I made it myself. Here it is, in all of its glory - the elusive battle charset template!
(Yay for http://www.iownjoo.com !)
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