First of all: If you got Photoshop 7.0 you need to update to 7.01.
7.0 doesn't save Alpha-Channela in TGA's (bug).

As far as I remember you need at least extra-edition to use alpha-transparency within gamestudio.

Alpha-channels allow you to save a selection/masked area within Photoshop.
Gamestudio uses Alpha-Channels to make the unselected parts transparent.

1. Load an image
2. Make a selection of the areas you don't want to make transparent
3. Go to the "select" menu and save your mask.

You just created a new alpha-channel.

4. Save your image as 32bit TGA.

Use Photoshop help on how to create accurate selections.
Look at the Wiki or search the forum on how to avoid sorting-errors in gamestudio when you use Alpha-transparency.