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The Appearance lets you set up a transparent background for the output.

When the option is checked, where there would have been a white opaque background there is nothing it is transparent. When the image is placed onto another image and there are areas of "nothing" you can see what is underneath.

Hint:
The effect of using the transparency may be not be seen in some programs, for example Photoshop 6 opens a TIFF file with a transparent background and the transpareny is correct, wheras Photoshop 5.5 doesn't use the transparency.

Another quirk is that Photoshop 6 doesn't see the alpha channel that has been created. Go figure.

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Color Space - Resolution - Anti-Aliasing