If you check the "enable automatic transparency" option on the Window Tab, SWF Studio will remove the title bar and border from your application and make it transparent. Enabling transparency automatically removes the background from your application, allowing them to take on complex, non-rectangular shapes.
Transparency can be implemented in "masked mode" or "layered mode" depending on what version of Windows you are using. Windows 95, Windows 98, Windows ME and Windows NT always used masked mode. Windows 2000, Windows XP and newer systems use layered mode unless the screen resolution is set to 256 colors or less, then masked mode is used instead.
In masked, SWF Studio extracts transparency information from your movie and automatically generates a mask for your application window. In masked mode a pixel is either completely transparent or completely opaque. As a result, edges of irregular shapes may have a slight roughness to them, sometimes referred to as a "stair-step effect" or "the jaggies".
In layered mode alpha channel information is extracted from your movie automatically but, instead of a mask, layered mode supports true alpha-blending of your movie with the desktop. This means that your application window can be translucent (partially transparent to what's below it) and the edges of irregular shaped objects will be anti-aliased for a smooth, polished look.
SWF Studio will automatically switch between masked and layered mode as the desktop resolution is changed, however dynamic changes in color depth are not picked up by Flash. For example, if your application is started in 256 color mode, switching to high-color (16-bit) or true-color (32-bit) will affect whether the transparent mode is masked or layered, but Flash will still render the SWF file as if the screen was in 256 color mode. This is a limitation of Flash.
One thing to keep in mind is that the size of your movie and animation speed directly affect the amount of CPU required to render your application transparently. The larger your movie, the more CPU will be required to make your application transparent. You can use the SWF Studio Win commands to change the size of your movie on the fly to control the amount of CPU required. You can also use the Transparent.setQuality and Transparent.freeze commands to affect the amount of CPU required in transparent mode.