As a complement of the valuable information provided by Klaries:
The nVidia plug-in is (indeed) the most frequently used tool (actually I don't know any "paint-tool with native DDS support).
Still, this plug-in manages several formats, some with an alpha channel other without (all these formats belong to the DDS / DXT specification, or S3TC "S3 Texture Compression").
To make things even easier, the shaiya client seems to use the alpha channel for different purposes (the DirectX engine allows several kind of renderings).
Basically:
- when drawing weapons, the alpha data are used as a mask to define which part is drawn and what is not drawn.
the mean reason of such use comes from the way the 3D objects (including weapons) are drawn, they are a set of small triangles connected to each other, assuming that it is very hard to draw fine details (meaning for instance small spikes that bristling the weapon) without using a very important number of triangles and thus large amount of data and significant time of computation; to avoid that, an alpha mask is used, the details are drawn on "large" triangle but they are clipped with the alpha information (the points of the triangle whose alpha is 0 are not drawn)(note that the color stored in the weapon record (the ITM data) is certainly used together with the alpha data to compute the clipping mask, I didn't success so far to generate the exact same effect than the client, I didn't spent days on it neither)
- when drawing gears, the alpha data are used to create smooth reflections with ambient light (mainly the sun); the texture of the gear can contain fine details but they are drawn flat to the gear (no relief). the alpha channel is so used to define the intensity of the reflexion, meaning of the brightness of the gear, simply because that gloss is not the same, for instance, for the torso and for the shoulders. if the alpha mask is fully filled-in with 00s the gear will have no reflexion at all (if used as a clipping mask, the gear won't be drawn), if the alpha is fully filled-in with FFs the gear will shine horribly.
The format of the DDS files (the DXT format) is:
- DXT3 for gears, because DXT3 offers sharp alpha (smooth transitions)
- DXT5 (or DXT3) for weapons
none should use DXT1 since it does not contain alpha data (and may be your files were saved in this format).