Yes, you can choose the Alpha channel in Icon Developer which will basically let you choose a transparent color.  The best way though is to just create an icon with the transparency and save it as a .png and then import into Icon Developer.

That degree of detailed explanation depends on what application you use to create images.  There may be some step-by-step guides in the Stardock wiki for commonly used graphics applications (I haven't looked) but you'll likely need to seek help on a user forum dealing with the specific application you are using.

I'm still using Paint Shop Pro 8 - how to create images with transparency was not obvious or intuitive at all when I first tried & the Help files seemed to assume you knew what you/they were talking about to begin with.  It was very intimidating and I only arrived at an understanding through a process of brute force attack (trial and error... as in lots of error).