transparency in png images

Does anyone know what setting will work for making transparency with .png images? I had it set to a point where it seemed as though it would work, then when I uploaded the icon the parts that were supposed to be transparent were a very light gray. And I know I could do it with a .gif, but sometimes it just won't work for me because it will completely sacrifice my image quality due to less colors. If anybody could help, I would very much appreciate it!