Using transparency to display your wallpapers can give you some spectacular effects, particularly when you paint your wallpaper over a background image.
The slider lets you set the opacity with which the wallpaper image is displayed over the background. 100 is fully opaque and 0 is completely transparent.
Fading uses per-pixel alpha blending to paint the wallpaper image over the background using a gradual fade out to the edges of the image This can produce some stunning effects. For example try setting the background to display a landscape or star field and then display your image over the top using a fade effect. See the examples below to get a better idea of what can be achieved. There is a YouTube video demonstrating how to use fade effects at the bottom of the page.
As well as allowing AWC to calculate an alpha channel for your images you can choose the option Use Masking File and select a file that contains a user defined alpha channel explicitly. Click here to see a separate page that explains all about alpha masks and what you can do with them.
Click here to see some more examples (Web link).