In a nut shell-
In graphics, a portion of each pixel's data that is reserved for transparency information. 32-bit graphics systems contain four channels -- three 8-bit channels for red, green, and blue (RGB) and one 8-bit alpha channel. The alpha channel is really a mask -- it specifies how the pixel's colors should be merged with another pixel when the two are overlaid, one on top of the other. Once you have created your alpha channel, it works off black/white or grayscale. Any part of the graphic that is covered in black in the alpha channel will be hidden, anything cover in white will be visible. In the case of the tga files for the terrain, they do nothing to the actual tile image but rather the color or noise image that is overlayed on any tile that contains water. You could in actuality place an all black alpha channel in you shore tga's and it would work just fine.
As a practice lesson you can use the same method for replacing the trees in Sfighters. Find a tree you want to use, open it and make sure the mode is set to RGB, create an alpha channel, fill the alpha with black. Turn on one of your other channels to see you image , select the alpha channel and paint the tree white. Export as a 32bit tga w/alpha to your particular terrain folder and you'll have new trees. To change back just drag out the file or delete it. Sfighters will then use the default file conatined in the .cat file.
Try it out.