Akira's exactly right, but for anyone who may be looking at this who doesn't have that much photoshop knowledge, so here's how you'd do it step by step:
create a new document in photoshop
create a new layer in photoshop - you should now have two layers
the new layer is where you're going to put everything, the original background layer under that will remain blank
before you save, take the bottom layer and on the left side of it, there is a little eye icon. click that and make the layer invisible. the white default layer background should now look like a grey checkboard pattern - this means that it will now be transparent if you save it in the proper format
now we are ready to save. go to file - save as, and select png from the file format menu. nae it whatever you want. it will ask you if you want to make the image interlaced or not. I'm not sure that it matters.
in C2, open the sprite editor
in the sprite editor, open the png image you have just made. you should see that the parts had the checkerboard pattern in photoshop are now transparent in the sprite editor. it will also show up transparent if you just open the image normally. if the transparent bits are white or anything but transparent, go back into photoshop, and check if your art is on another layer, and if the bottom layer is invisible.
be careful about DELETING the background layer vs making the background layer INVISIBLE, because sometimes I've noticed that photoshop can fill in the background on layers when the background layer underneath it is deleted and there is no layer above it (who knows maybe I'm doing it wrong, but the above steps work every time).
hope it helps!