This is how I set it up in Photoshop 7 to give correct transparency for civilopedia pictures, like tech advances and buildings. It also works for terrain. It doesn't work for unit graphic, though. I also know it works in 5.5, it should be the same in most versions of Photoshop.
*Start from a picture in RGB, this give you the most good looking colours. Make sure it's the correct size, for most civilopedia pics this is either 32*32 pixels, or 128*128.
*Go to Image\Mode\Indexed color... This opens a window called Indexed color.
*Choose "Local(Perceptual)" in the Palette-field
*Choose "Black and White" as Forced colours.
*Don't click OK yet!
* In the Forced field, choose "Custom". This should make a new palette window appear, named Forced colors, and it should be filled with grey, except the first two squares, which should be black and white, respectively.
*Click on the black field, and give it the RGB values (255, 0, 255), thus making it magenta.
*Similarly, make the white field into green (0, 255, 0).
*Click OK to close this Forced colors window, and click OK to apply the changes in the Indexed color window.
Photoshop usually saves these settings, next time you want to make civ graphics with the right transparency, just go to Indexed color and hit OK.
You don't have to use magenta and green, of course, the important things are the places in the palette, not the actual colors. If you wan't ugly green in the picture, you can fill both squares with magenta, for example. 
Serve with a chilled white wine and some asparagus, enjoy!
*Start from a picture in RGB, this give you the most good looking colours. Make sure it's the correct size, for most civilopedia pics this is either 32*32 pixels, or 128*128.
*Go to Image\Mode\Indexed color... This opens a window called Indexed color.
*Choose "Local(Perceptual)" in the Palette-field
*Choose "Black and White" as Forced colours.
*Don't click OK yet!
* In the Forced field, choose "Custom". This should make a new palette window appear, named Forced colors, and it should be filled with grey, except the first two squares, which should be black and white, respectively.
*Click on the black field, and give it the RGB values (255, 0, 255), thus making it magenta.
*Similarly, make the white field into green (0, 255, 0).
*Click OK to close this Forced colors window, and click OK to apply the changes in the Indexed color window.
Photoshop usually saves these settings, next time you want to make civ graphics with the right transparency, just go to Indexed color and hit OK.
You don't have to use magenta and green, of course, the important things are the places in the palette, not the actual colors.
If you wan't ugly green in the picture, you can fill both squares with magenta, for example. Serve with a chilled white wine and some asparagus, enjoy!
