Transparency

The colour of the bottom left hand pixel is the one that sets the transparent colour. 

So if the bottom left pixel is a certain shade of green, all pixels in the sprite that colour will also be transparent.  Zoom right in on your sprite so that you can see the bottom left pixel.

For this sprite all yellow pixels will become transparent in the game if you tick the transparent box in the sprite settings. 

 

Animated Sprites

You can make animated sprites by making a series of images that are all the same size like this:

 

Under the animation menu in the sprite editor, you can find options to make your animation better.

Explore some of the other options on the animation menu to see what they do. 

Morph is particularly powerful, where you can make one sprite morph into another over a number of frames.  Start with a single image - in the example below I chose the ghost.  Then choose Animation > Morph.  Choose the number of frames over which the morph will take place.  Then select the image that you want to morph into - in this case I chose the bear.

Strips

Sprites usually come as animated gif files, or as strips.  A strip is just a bitmap file that stores all the images next to each other.  One of the problems with using strips is that you don't usually know the exact size of each sprite, so it can sometimes be a bit fiddly trying to extract the sprites from the strip.  Click here to download a sprite strip to experiment with.   (from http://www.smbhq.com/users/sprite/ )

Create a new empty sprite, then choose Edit.

In the sprite editor, choose File > Create from Strip.  In this case I only wanted to use the 2 bottom left sprites of Mario walking, so I used trial and error to get the settings below.

Different strips will have different settings, but with practice you can get quite efficient at extracting sprites.

Where to find sprites

To make your game look really good, it is important to get a collection of good looking sprites. 

The official Yoyogames site has a great collections of sprites you can use: http://www.yoyogames.com/resources/

One of the best things to do is team up with someone with some graphics skills and get them to produce them for you.  But failing that, a search in Google images for game maker sprites will yield plenty of possibilities.